In A Primer on Corporate Governance, de Kluyver provides and introduction and understanding of corporate governance and looks at the relationship between governance and society. Corporate governance deals with the activities, rules and procedures by which corporate activity is directed. According to de Kluyver (2013) this book can help prepare individuals who wish to work with or serve on a board of directors and expand their perspective from a focus on management to one on governance. Giving us a better understanding on the relationship between governance and society, de Kluyver explains how corporate governance greatly impacts the responsibilities that tie a corporation’s management, shareholders and board of directors together. He argues …show more content…
De Kluyver argues that although shareholders own corporations, they typically do not run them, and instead “elect directors, who appoint managers who, in turn, run corporations”. Because shareholders are made “residual claimants”, this tends to produce “the strongest incentive to maximize the company’s value and generates the greatest benefits for society at large” (4). Management and directors have a fiduciary duty to perform in the best interests of shareholders; this structure suggests that investors face “two separate so-called principal-agent problems with management whose behavior will likely be concerned with their own welfare, and with the board, which may be beholden to particular interest groups, including management”
"Principles of Corporate Governance." 2012. The Harvard School of Law Forum. Ed. Noam Noked. Web. 2 April 2014. .
It is not surprising that a corporate or IT governance is largely debatable and dominant business topic nowadays (Weill & Ross, 2013). That is why there is such a significant number of the guidelines published on the issue. Anyway, it is highly important that these guidelines are being applied properly. The board of the organization is considered to be responsible for the implementation of these guidelines and principles (Weill & Ross, 2013). Nevertheless, the principles may vary considering the organization approaches. The application of the particular organization approach predetermines the principles a board is being guided by.
Friedman argues that, for example a corporate executive has a responsibility to his employers, which is usually to make as much money as possible for the company while conforming to the laws and ethical customs of the society. This employer, outside his work, may devote his time and money to certain charities that he regards as worthy and while these are social responsibilities they are the individual’s social responsibilities, not the company’s. Friedman in a sense says how entities have responsibilities; it is the people that have the responsibilities. A corporation in a way is too vague of an entity to assume responsibilities. Again, he feels ‘’that the key point is that, in his capacity as a corporate executive, the manager is the agent of the individuals who own the corporation…. And his primary responsibility is to them’’ . The only responsibility a director should have is to its shareholders and not to society or any other interest group or public good. And so if the interest of the shareho...
The theories of corporate governance failures come in two theories in 2015. One is that there is too little active and objective board involvement. The second theory is that there is not enough accountability to shareholders. (Holly J. Gregory, 2014)
Consequently, managers who pursue their own interests rather than that of the company may underperform its duties. The following corporate governance mechanisms can play a major role in preventing managers from engaging in activities that lower firm value thereby incentivizing management to perform excellently. This essay will briefly consider three of those mechanisms that gear management towards excellent performances.
Corporate governance is deliberate and sustained efforts by the firm to update, improve, systematize and adjust its internal regulations and guidelines. World over corporations have been under sustained attack for continued improvement in performance at expense of moral or social issues. Good corporate governance involves financiers and other stake holders of an entity getting value for their investment. This, therefore, can be viewed from agency perspective where the ownership and control is separate. An ideal corporate governance practice does not only involve the fight between shareholders and directors but the ethos of an entity and achieving its set goals. According to Shleifer and Vishny (1997) the core objective of corporate governance in which mostly applies to Anglo-American companies, involves design of incentives which will maximize return on equity given that the ownership and control is separate.
Bibliography: Turnbull, S. (1997). Corporate governance: its scope, concerns and theories. Corporate Governance: An International Review, 5 (4), pp. 180--205.
Corporate governance is the broad term that describes the process, laws, policies, customs, and institutions which provide guidance for the organizations and corporations in the way they manage, operate, and control their operations. It deals with the relationship among stakeholders and works to attain the goal of the organization. Similarly, it deals with the accountability of the individuals through a method which reduces the principal-agent problem in the organization. Fine corporate governance is a crucial standard for establishing the striking investment environment which is needed by competitive companies to gain strong ...
Agency theory, stakeholder theory, stewardship theory and transaction cost economics are the main theories that influence the development of corporate governance. The corporate governance can be drawn from a variety of disciplines and areas such as finance, economics, management, accounting rules, legal and regulatory, organization behaviours, etc. It express concerns in both internal aspects of the company (monitoring internal control & board structure) and the external aspects (eg. relationship of labour policies, role of multi shareholders and other stakeholders) besides protections of minority shareholder’s right (Claessens and Yurtoglu; 2012; Mallin, 2013). The Management will have the responsibility for the design, implementation and maintenance of the internal controls to prevent and detect any fraud that might happen.
In the beginning of 20th Century, the corporation control shifted into the hands of managers resulting in control and ownership separation, but however as the 20th century progressed, the shares of the founding families’ descendants gradually reduced their shares which thus caused certain agency problems (Blowfield & Murray, 2011).
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).
A spate of shattering corporate collapses, particularly among large listed companies despite their annual reports and accounts have raised numerous issues in corporate governance. The corporate meteoric rise and fall was associated with serious deficiencies in its corporate governance, including weaknesses in internal control, financial reporting, audit quality, board’s scrutiny of management. The collapse of a number of businesses have several important lessons on the role of corporate governance in preventing corporate collapse with the subject of increasing regulatory measure. Considering this, on 30 June 2010, a revised version of corporate governance principles and recommendations with 2010 amendments was issued to provide guidance to companies & investors on best practice of corporate governance and to increase the transparency of a listed company. These principles are not strictly binding “hybrid regulation” but generally entail some form of sanction if they are not followed the approach of the ASX is an ‘if not, why not’ approach where companies are asked to (1) detail whether they comply with each best practice recommendation and (2) explain why they do not comply if this is the case.
Corporate governance is the policies, rules and regulations, by which a corporation shapes the way corporate officers, managers, and stakeholders perform their duties to create wealth for the entity. According to Lipman (2006), good corporate governance helps to prevent corporate scandals, fraud, and potential civil and criminal liability of the organization (p. 3). Most companies, whether formal or informal, have some type of corporate governance for the management to follow. Large companies will have a formal set of rules and regulations, while small companies frequently have spoken rules often due to lack time to form any type of formal policies. There is often no corporate governance with family owned companies.
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,