Based on the definition of corporate governance is corporate governance refers to a system that firms are directed and organized (Cadbury Report, 1992) or also define the connection between stakeholders, management, and board of directors of a company and effect how that company is working. Governance structured specifies the distribution of rights and responsibilities among the different participants in the firms. Now days, shareholders have a higher expectations that companies must be run in accordance with a transparent and fair in corporate governance. The corporate governance become more important in company because many shareholders consider lack of true and fair in corporate governance, it became one of the main challenges how to overcome it. The corporate governance framework should ensure the company’s strategic guidelines, effective monitoring of management by the Board, and the accountability of the Board to the shareholders and the company.
Besides, a transparency committee can also help with internal auditor appreciate its primary responsibility lies with the board, not for personal interest and pleasing the leader. ii. Corporate culture In Enron, it was dictatorial and revenue-based to new ideas. Leaders not only fostered a wrong sense of security for employees, paying high wages to keep workers dependent on the system via golden handcuffs, but also may allows employees did unethical behaviors. This repressive and illegal corporate would eventually make company lost creditability, or else, make company
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. Board Composition: This is a principal mechanism through which the shareholders can check managerial performance. If a management team is not performing well, the shareholders could direct the board of directors to fire the incumbent team and replace them with better perfor... ... middle of paper ... ...eves that it “has changed the attitudes and practices of U.S managers”, stating that “it represents the most effective check on management autonomy ever devised.
In other words, directors need to act in good faith in the best interest of the company. However, once shareholders delegated their power to directors there was another issues, whether directors should act in the best interests of shareholders only, or focus on the interests of other stakeholders? So, whose interests should be promoted by the directors? Some scholars believe that the focus should be made on stakeholders, as they are under the risk of the firms` actions; they contribute to the company ‘some form of capital, human or financial, something of value, in a firm’. So, corporations should be responsible toward stakeholders.
In the Enron scandal there have been many failures and the outcome to this is a practical standpoint which included a moral hazard in the company where managers where elaborating and not managing the companies risks. Take in to account the risks that had not been managed properly to certain extent in the company. Anglo-American system of corporate governance is centered as the ownership of an establishment and it is extensively circulated between the differences in shareholders than the ownership of being focused on the Sarbanes Oxley Act of 2002. Anglo-American corporate governance is a primary aim of maximizing the shareholders value, which improves the access of savers on firms to make investments opportunities. As a company Enron was seen
Organizational Ethics Issue Resolution Organizational Ethic Issue Resolution An organization that lacks a true culture of ethical compliance can create problems with integrity issues with stakeholders and customers. When a major company such as Enron, was structured their approach to ethics on the surface appeared to oppose progressive innovation. The policies and ethics programs were set up to protect the company and its shareholders. According to author Berenbeim, The Enron company had a detailed code of ethics it was not enough the organization needed to incorporate ethics and integrity throughout their corporate culture. Enron had to focus on business ethics issues raised by the conduct of the company’s directors, officers, accounts and lawyers (Berenbeim, 2002).
2) Strenghtening of shareholder’s right in term of a greater incentive and ability to monitoring management. These rights will bring a justice and legal protections from unethical managers. For example, the shareholders may bring a punishment toward a managers by loss of employment or reduce in the salaries of the manager. 3) Last method is by using a indirect means of corporate control where takeover specialist must acquire control of a firm in order to displace poorly performing managers.
Systemic risk relates back to the issue of corporations being “too big to fail”. Systemic risk is the risk of an entire financial system (or entire market) collapsing, opposed to just one segment (or entity) of the market. Companies within a market become so connected that if one were to fail, the entire market would be likely to deteriorate. Like Alan Greenspan, I think that corporations should never get too big that the federal government must bail them out. I believe that companies, whether they are financial or non-financial, should be held accountable for their actions.
The public image of distrust will led customers or investors away from that company causing it stock – if a public company to drop and potential going out of business and causing workers their jobs. In closing as we look at internal controls for companies it is a way to keep them doing the right thing both moral and ethical. Managers are now held responsible for their actions and this was thanks to “The Sarbanes Oxley Act.” Everyone in that corporation from the top down must follow the correct procedures. These way investors can invest knowing internal controls are there for their protection. As long as humans are involve in internal controls, the chance of someone getting around them for their own personal gains is possible, but at lease everyone knows when these people are caught, they will pay a high penalty.
Corporate directors have an important job of representing interests of stakeholders ranging from profit maximization in interest of shareholders, to a broader set of stakeholder interests such as creditors, employees and customers. These are governance systems with competing interests because you cannot focus on profit maximization for shareholders whilst keeping in mind stakeholders needs for employment and stability. The answer perhaps is found in “enlightened shareholder value” approach that provides a more comprehensive analysis on the issue by compromising interests of both parties. The shareholder theory states that directors have delegation for decision making authority to manage the company with the exclusive purpose of maximizing shareholders return on investments. “In the traditional view of the firm, the shareholder view, the shareholders are the owners of the company, and the firm has a binding fiduciary duty to put their needs first, to increase value for them.” (Miles, 2011) Therefore, actin in company’s interests is to conduct the business in the way that promotes shareholder interest and value.