As stated in the Nudge Theory in the 2000’s “…. that governance must be driven by needs of the people being governed, not by the governing authority.” Corporate Governance has over the past two decades become a pertinent subject in the corporate world owing to the control that rests in the hands of owners/shareholder, directors and senior officers of a corporation in the financial decisions of the said corporation. Corporate Governance refers to the systems by which a corporation is directed and controlled by its shareholders, directors, and officers. The structure of governance specifies the rights and responsibilities of different participants in the corporation with regard both to one another and outside parties. These laws generally …show more content…
In the narrow definition, it creates a sense of trust at the corporation level among the investors and owners/shareholders those who provide the capital for the corporation. While in the broader sense, good corporate governance creates trust and confidence in the market at the national level. History of Corporate Governance The need for corporate governance arose in the second industrial revolution during which there was change in the corporate structures as the United States and Europe started large enterprises such as the railways, the telegraph and mining which required salaried managers to manage the corporations instead of the owners/ shareholders. The milestone work of Berle and Means in their published work “The Modern Corporation and Private Property” in the year 1932 was the first to study the world of corporate governance. In their work Berle and Means talk about governance of corporations where there is separation of ownership and control and the shareholders (owners) place their trust mostly on the board of directors to represent the interests of the shareholder. According to their analysis, sixty-five percent of the largest two hundred corporations were manager controlled, which in their view signified de-facto separation of ownership and …show more content…
The objectives of the corporations, the methods of achieving the objectives set and the supervising performance are determined by the relationships between the shareholders, board of directors and its stakeholder which is essentially the structure of the corporations. The key aspects of good corporate governance is the transparency of the structure and operation of the corporation and accountability of the managers and board of directors to the shareholder of the corporation. Good corporate governance essentially creates an environment of trust between the corporations and providers of capital, it does not just provide access to finance but also helps the corporations in their operations while improving the strategic thinking by bringing in independent directors who bring a lot of experience, monitors the risk that the corporations face around the world, helps the stakeholders gain faith in the corporation and limits the liability of the top
Bratton, W.W. & Wachter, M.L. (2008). Shareholder primacy's corporist origins: Adolf Berle and the modern corporation. Journal of Corporation Law, 34 (1): 99-152.
Blair, Margaret M. (1995) Ownership and Control: Rethinking Corporate Governance for the Twenty-First Century. Washington, DC: Brookings.
Adolph A. Berle argued for “Shareholder Primacy” in that he believed that the corporation exists only to make money for its shareholders.
Strong corporate governancethis company believes in order for a business to have strong performances they have to have good corporate governance. They strive to be transparent in their governance practices and policies. They also strive to be responsive to their shareholders while managing the Company for long-term success.
Corporate gorverance as a system are directed and controlld by companies. Initially, their board of directors should take responsible for the gorverance of companies, which include setting strategic aims of companies , guarantee an effective leadership, supervising the proformance of business management and reporting on it to shareholders. The board's action should comply with the law, regulations and shareholders. In addition, the shareholders also play an important role in gorverance and they have right to decide who can be employed as the companies' directors and auditors to provide good governance structure for them. Therefore, corporate goverance can be regarded as what the board of a company does and how it sets the values of the company.
This report gives the brief overview of the concept of corporate governance, its evolution and its significance in the corporate sector. The report highlights various key issues and concerns that are faced by the organizations while effectively implementing and promoting Corporate Governance.
Corporate governance at Microsoft serves several purposes. Establish and preserve management accountability to Microsoft's owners appropriately distributing rights and responsibilities among Microsoft Board members, managers and shareholders. Provide a structure through which management and the Board set objectives and monitor performance. Strengthen and safeguard ...
Jensen, M.C and Meckling, W.H (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, October, 1976, V. 3, No. 4, pp. 305-360. Available on: http://www.sfu.ca/~wainwrig/Econ400/jensen-meckling.pdf. [Accessed on 20th April 2014].
Bibliography: Turnbull, S. (1997). Corporate governance: its scope, concerns and theories. Corporate Governance: An International Review, 5 (4), pp. 180--205.
The Asian Financial Crisis which exposed the corporate governance weaknesses was a wake-up call for all the policymakers, standard setters as well as the companies (OECD, 2014). The parties that involved and affected from the crisis started to realize the importance of having strong corporate governance practices in their countries. Consequently, the Asian economies along with the OECD established the Asian Roundtable on Corporate Governance in 1999, in order to support the enhancement of corporate governance rules and practices (OECD, 2014).
Nottingham Trent University. (2013). Lecture 1 - An Introduction to Corporate Governance. Available: https://now.ntu.ac.uk/d2l/le/content/248250/viewContent/1053845/View. Last accessed 16th Dec 2013.
The office of the Director of Corporate Enforcement (ODCE, 2015), Ireland defines Corporate Governance as “the system, principles and process by which organisations are directed and controlled. The principles underlying corporate governance are based on conducting the business with integrity and fairness, being transparent with regard to all transactions, making all the necessary disclosures and decisions and complying with all the laws of the land”. It is the system for protecting and advancing the shareholder’s interest by setting strategic direction for the firm and achieving them by electing and monitoring the capable management (Solomon, 2010). It is the process of protecting the stakes of various parties that have their interest attached with a company (Fernando, 2009). Corporate governance is the procedure through which the management of the company is achieving the goals of various stake holders (Becht, Macro, Patrick and Alisa,
...can be an arbiter of business responsibility to society through the application of tax incentives or tax credits. In good corporate governance, the management should be able to meet their social responsibilities, these include making sure that their products are not hazardous to people and to the environment, sharing their profits for the good of the community as a natural person or human being would do, donating to social causes, organizing activities to benefit the community.
Normally, corporate governance is considered either “good” or “bad.” For example, “bad” corporate governance can be to blame for the Enron scandal and the financial chaos that ensued. Enron’s board of directors did not have the best interests of its shareholders in mind. The board of directors decided not to enforce conflict of interest rules when they allowed the CFO to create private partnerships and do business with the company. These partnerships were used to cover up fraud, and Enron eventually collapsed. This scandal brought new attention to the importance of corporate governance and the implications that can occur, such as a massive corporate collapse like Enron, when corporate governance systems are weak (Corporate Governance Failure: The Case of Enron and Parmalat). I think learning about corporate governance is interesting and important because weak corporate governance can cause large-scale financial
...eve efficient resource allocation. Failure to achieve appropriate and efficient corporate governance could result in sub-optimal allocation of resources, abuses and theft by management, expropriation of outside shareholders and creditors, financial distress and even bankruptcy. While evaluating the role of corporate governance, it is imperative to also consider the levels of development of market institutions and other legal infrastructure including laws and enforcement that provide good standard for investor protection as well as ownership structures.