Corporate governance arise whenever a company’s ownership separates from management, because managers, as Adam Smith mentioned in his “ The Wealth of Nations”, can not well expected to watch over shareholders interests as serious as over their own. As such, the board is introduced to make sure the management works on the best interests of the company in the long run by monitoring and regulating managers’ performance on behalf of shareholders. If the board does not response or only wants to be pacifist in case the management does wrong, the shareholders’ interests will be inevitably damaged as what happened in Loewen’s case. There are some examples we can take from Loewen’s to demonstrate how the management fails to fulfill its commitment to the shareholders: • Used improper accounting practice Loewen used an improper accounting practice to book its pre-need sales. After the customers made a down payment, Loewen started to recognize the customers’ purch... ... middle of paper ... ...hairman and CEO, who may have his own interests other than other shareholders.
The main principles of corporate governance are ethics and integrity, higher level of integrity must be carry out in the corporate office, when they make the decision must follow a code of exhibit ethical behaviour and code of conduct. The purpose of form the corporate governance can reduce the level of agency problem because the good corporate governance is separation of owner and managers. Prevent the conflict of interest between directors and shareholders to maximize the shareholders wealth, corporate governance like a middleman when directors make a decision not agree with shareholders, the role of corporate governance is clam it. Corporate governance can improve the transparency and accountability, let management understand their responsibilities and duties of the work for the corporation, it can make shareholders know more about what decision making and future developing of the
Running Head: Business Ethics Business Ethics name school The modern theory of the firm, which is central to finance and corporate law, views the corporation as a of contracts among the various corporate constituencies. Upon this foundation, finance theory and corporate law postulate shareholder wealth as the objective of the firm. Research in business ethics has largely ignored this contracts theory of the firm except to reject the financial-legal model as normatively inadequate. Philosophers generally bring philosophical theories of ethics to bear on problems of business, and they regard the contractual theory of the firm primarily as a subject for criticism using the resources of philosophical ethics. In particular, stakeholder theory, which stresses the importance of all groups that affect or are affected by a firm, has been proposed as a more adequate theory of the firm for studying business ethics.
Institutional ownership also plays a part in monitoring, and controlling agency costs within the corporate form of organization. Nature of Agency Relationship Problem In the corporate form of business, the primary goal should be to maximize long-term value and owners’ value, or shareholder wealth maximization (Brigham, & Houston, 2011). The problem is that managers, who are supposed to make the decisions that would best serve the corporation, are naturally motivated by self-interest, and the managers’ own best interests may differ from the principal's or stakeholders best interests. An agency problem that exits in the corporate form of business is the conflict of interest between the company's management, and the company's stockholders. The relationship between the stockholders and corporate management is often based upon those conflicting interests that arise from a separation of ownership and control, differing management and stockholder objectives, and an information asymmetry that exists between the two groups (Fama & Jensen, 1983).
The above statement is an adaptation of how business executives may act in a way that violates ‘shareholder primacy’. I disagree with the statement made as I feel that in fact businesses have a moral obligation to serve all stakeholders and not just maximise profit for shareholders. I will be enhancing this position through introducing the models relevant to corporate social responsibility, and by; discussing, evaluating and refuting the two strongest arguments that support the moral minimum model and finally evaluating two arguments that are in favour of the stakeholder model. My position will then be further enhanced by attempting t... ... middle of paper ... ...es. I have done just that by refuting the two strongest arguments for Shareholder Primacy, by evaluating the two strongest arguments for the stakeholder model and rebutting any counter-arguments to them.
Part A The recent corporate collapses have given rise to the major contemporary issues in corporate governance which fuelled from the roles and responsibilities of board and directors. Corporate governance is not just mean of compilation of norms and procedures but the ways company conduct business for whom this norms and procedures is for? You cannot have good corporate governance unless you have poor practises in terms of dealings in business. Corporate governance is about how you ingrain your values and principles into every aspect of doing business. The ASX Corporate Government council (2003, p.3) guidelines on “Principle of Good Corporate Governance and Best Practices Recommendations”, define corporate governance as “The system by which the companies are directed and managed.
Following the meanings given by several professional sources, business ethics is defined as the study of moral standards in the context of all business situations (Columbia University, 2008; Knapp, 2001; Crane & Matten, 2007). Because of this change in consumer and regulator concerns, a corporation cannot survive unless it takes care of and strives to respect the interests of all of its stakeholders by applying ethical standards to actions (Post, Lee, & Sachs, 2002). To do this, a corporation must be accountable beyond basic “guidelines a... ... middle of paper ... ...009). Optimizing Your Code of Conduct. Federal Ethics Report , 16 (6), 6.
it is a means to keeping companies profitable. A study by Epstein et al., (2012) highlighted that from either an internal long-term profitability or external shareholder perspective, there is an indication that good board governance add value to an organisation. In contrast, poor corporate governance may contribute to company /business failure, which could, in turn, causes a company into liquidity crisis leading them to insolvency or total collapse. What is Corporate Governance? The Organisation for Economic Cooperation and Development (... ... middle of paper ... ...porate governance can affect corporate performance.
When there is proper corporate governance, the corporation will work smoothly because of the clear accountability and communication within the organization. This also means that people must understand what their given roles and responsibilities are within the company. Possibly the most widely known example of poor corporate governance lies with Enron. Enron and its employees and shareholders went bankrupt. According to Paul M. Healy and Krishna G. Palepu in the “Journal of Economic Perspectives”, corporate governance “creates appropriate linkages of information, incentives, and governance between managers and investors.
For countries such as United States of America and France, ethics codes must be stronger and well known by financial community and citizens with keeping balance between shareholders’ interests among other interests of stakeholders. The situation in United states is different than France; American executives and shareholders are enjoying high profits and incentives even employees’ cutting percentage is high turning that to Anglo-Saxon and adopting shareholder theory. In France, unemployment percentage is high and companies achieve low profits turning to an important fact that executives cannot make decisions can serve shareholders’ interests and their personal interests since other groups of stakeholders is strong and can block their decisions. Ethics codes is an important mechanism of corporate governance, which comes from communities without need for enforcement. That opens the door for ethics programs to go in different levels in business world and for normal citizens to assure social and environment responsibilities of companies.