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The importance of corporate governance
Analyze corporate governance
Corporate governance essay introduction
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Corporate governance refers to the relationship between shareholders, management and the board of directors of a corporation and how each of these participants influence the direction and performance of the corporation. The governance of a corporation directly relates to how that company will operate and whether that company will be successful. Corporations that operate using sound, moral corporate governance lay the groundwork for a corporation that has integrity and efficiency in financial markets. When a corporation is being governed by sound practices it leads to better financial decisions. When corporations prosper, it leads to an economy that can grow and provide the United States citizens with a better quality of life as well as …show more content…
By utilizing regulatory guidelines, a company can compare itself to other corporations in the same market. Capital markets in the United States place importance on credible arrangements made through corporate governance, well understood, and must adhere to commonly accepted business principles. The corporate governance of a corporation must also place importance on responsible and transparent practices that strengthen its impact toward market integrity and economic performance. These practices equate to growth of the company. This growth promotes a stronger economy for the United States by employing more employees, increasing the amount of raw materials purchased and selling more finished products. Well governed corporations also tend to outperform other companies in the same market which attracts investors and shareholders and leads to further financial growth for the company. Expanding corporations drives economic growth developments and aids in future financial resources. Future financing and the quality of investments results in an impact on the growth of the United States economy. The importance of having a good corporate governance structure in place does a lot to ensure a better way of life, more economic growth and overall success for Americans. Potential stockholders are not known for patience. If an investor is ready to purchase stock in a soft drink company and Coke-a-Cola has no shares to sell, the investor will simply purchase shares of Pepsi. Companies must ensure that they are meeting the demand of investors. Releasing more shares for sale will allow the company to build capital for funding future business
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.
Control of market share is the key issue in this case study. The situation is both Coke and Pepsi are trying to gain market share in this beverage market, which is valued at over $30 billion a year. Just how is this done in such a competitive market is the underlying issue. The facts are that each company is coming up with new products and ideas in order to increase their market share.
The relationship between the owners of a company and those who run the company is classified as an agent/principal relationship. In most cases this kind of relationship gives rise to a potential problem called the agency problem. This agency problem usually will occur where there is a conflict of interest between the desires of the principal and that of the agent. This is not a rare occurrence. It has been predominantly found to occur in companies where the directors are the agent and the shareholders who are the owners of the company is the principal.
In addition to CSR and company performance, corporate governance mechanisms are key variables which might affect the relationship between CSR and company performance. Corporate governance is defined from a broad perspective by Gillan & Starks (2003) as “the system of laws, rules, and factors that control operations at a company” (p. 2). Corporate governance mechanisms within a company protects shareholder interests and reduces the frequently occurred agency problem (Stuebs & Sun, 2015; Bushee, Carter & Gerakos, 2014). Due to the implementation of corporate governance mechanisms, shareholders have a greater control over the managerial decisions and actions, which prevents the agency conflict and creates trust
Bibliography: Turnbull, S. (1997). Corporate governance: its scope, concerns and theories. Corporate Governance: An International Review, 5 (4), pp. 180--205.
Governance is a form of investor protection which might be expected to influence how investors behave. In the context of emerging markets where many of the institutions protecting investors in more developed markets may not be fully present, it is important to obtain a better appreciation of how emerging market funds use governance in the investment decisions. Therefore, we choose IOI Group because have good governance that builds our trust towards them.
The Oxford English Dictionary defines ‘governance’ as ‘the act, manner, fact or function of governing, sway, control’. ‘To govern’ is ‘to rule with authority’, ’to exercise the function of government’, ‘to sway, rule, influence, regulate, determine’, ‘to conduct oneself in some way; curb, bridle (one’s passions, oneself)’, or ‘to constitute a law for’.
Corporate governance by definition refers to the processes, mechanisms and relations that shapes how the corporations are controlled and directed. Participants in the companies such as the board of directors, managers, shareholders, creditors, auditors, regulators, and stakeholders) are governed by the structures and principles of corporate governance that indicates how the rights and the responsibilities among the different participants are distributed and also it covers the rules and procedures for making decisions in corporate affairs.
Good governance is integral to the very existence of a company. It inspires and strengthens investor's confidence by ensuring company's commitment to higher growth and profits.
When corporate governance structures are sufficiently used, the company can raise dividends and lower the overall capital costs, which preserves investors’ confidence. It also has a positive impact in the market, both reputational and economical, which leads to better share prices and it provides the management and employees of the company with a guideline to achieve their objectives in a way which are in best interest of both the company and its
The corporation is a legal construct that came about as a way to accumulate and devote capital to, and share risk for large-scale entrepreneurial activities that would be difficult to fund otherwise. Shareholders take the brunt of the risk of their investments and received the leftover profit in the means of share value or dividends. This becomes a key metric for assessing whether the corporation is effective and efficient in its activities. (Holly J. Gregory, 2014)
Corporate governance is concerned with maintaining a balance between the social and economic goals as well as between the communal and individual goals. The corporate governance framework of a company exists to effectively use resources and thus maintain accountability for the purpose of resource stewardship and thus align the society and individual corporation’s interests. Through corporate governance is appropriate to lay solid foundations for oversight for oversight and management. Further, a listed company should establish and disclose the board’s roles and responsibilities in addition to evaluation and monitoring performance. Moreover, the corporate governance gives the distribution of rights and responsibilities among different stakeholders
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,
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.