OK4u is a company with diverse operations across two continents. Originally a small textile manufacturer, OK4u now also operates a large electronics company, hotels, a leisure chain and owns a household cleaning brand. The company is not listed in the UK and therefore is not subject to the UK Listing Rules and Corporate Governance Code (which are intended to help achieve good corporate governance).
Last year, the fortunes of OK4u's major rival, IPP, took a downturn following a fraud investigation. Certain allegations were made against AK, the high profile entrepreneur at the heart of IPP's business empire and IPP's share price collapsed. AK, who acts as IPP's Chairman and Chief Executive, now faces charges of theft totaling millions of dollars. Press reports suggest that his individual control over finances allowed him to transfer funds, take money for personal use and borrow to buy IPP shares without requiring another director's counter-signature. Each quarter, exceptional profits were reported and the share price soared -until the dramatic collapse. One influential newspaper suggested that AK's individual power was able to grow because of a lack of corporate governance and a 'cultural tolerance in the countries within which IPP operated'.
Naturally, OK4u wishes to distance itself from the actions of its rival, particularly as both companies operate in the same markets. In a press statement, OK4u confirmed its commitment to 'serve rather than exploit our stakeholders'. Following a complete review, led by an independent management consultant, the company has appointed a new Director of Compliance and Ethics. Her role is to implement the consultant's report, encourage ethical operations and strengthen OK4u's system of corporate governance. She has also announced an intention to establish a minimum professional standard amongst all OK4u's managers and is interested in the lessons that can be learnt from existing established codes of professional practice.
Explain the benefits of good corporate governance for both OK4u and IPP.