As discussed above, the two-tiered board of directors is used in the corporate governance mechanisms in Germany and Japan, which is praised as effective for the shareholders and also for relevant stakeholders. The Anglo-American model of board structure, including institutional and market-based holders, is intended to bring in the self-interested controllers aiming at making the decisions that maximize the value of the owners (Dennis and McConnell 2003). The essentially one-tier board in Chinese listed firms has a so-called supervisory board. Each of the corporate governance models reflects a structure in which to manage the agency problems arising when managers or relevant stakeholders are delegated rights of control. Each implies the ideal …show more content…
Berle and Means (1932) the corporatization reforms result in the transformation of control rights from individual to professional managers. The separation of ownership and control brings about the root of the agency problems, conflicts of interests among different parties. Additionally according to Shleifer and Vishny (1997), it can be more generally stated that the essence of agency problem comes from the separation of management and finance. The funds raised from investors can be used to invest in further production or cash out of the firms` holdings. Sometimes due to the lack or insufficiency of owners` fund and resources, managers need additional funds from investors to support investment opportunities or meet the financial obligations of the firms. Accordingly investors have high request and expectation on management team to operate the firms better and thus generate returns on their investment. The agency problem has become a wide concern among the listed firms and Chinese stock market. They are keep seeking corporate governance incentive mechanisms which can help to align the different interests between owners and managers, and monitoring mechanisms that can provide prevention or assurances that the funds and resources in the firms would not be expropriated or
The agency problems or conflicts are continuously happening between the principal and the agent. It particularly arises when an interest conflict occurs between the principal and the agent. In terms of finance, there are two core agency relationships; managers and stockholders and managers and creditors. To balance the interests and satisfactions between managers and stockholders which helps firm to improve performance, there are a variety of different measures have been generated and implemented by Telstra in order to optimize the bond and monitoring costs.
In the corporate form of business organization, an agency relationship problem exists. In agency theory, the agency relationship problem results from a separation of ownership and control. Self-interest on the part of managers acting as agents, and shareholders who are acting as principals exists within the corporate business organization. Agency theory allows us to understand the behaviors and conflicts that exist for corporation stakeholders and the managers of the company, and can allow for designing of effective incentive structures and other monitoring mechanisms to resolve the agency problem. Institutional ownership also plays a part in monitoring, and controlling agency costs within the corporate form of organization.
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.
There are many similarities and differences in the way that companies, in both the United States and the United Kingdom, are owned and operated. One of the main issues to look at between companies in these two countries is the roles and responsibilities of their board of directors. The board of directors of any business plays a crucial role in the success of the company. Although there are many similarities in the board of directors in these two countries, a few key differences can change the aspect of the company’s oversight.
Even though there are various views on the main components of the term corporate governance, this study will examine board structure, managerial incentives, antitakeover measures and ownership structure in more detail to see how these mechanisms are used to reduce the so-called agency conflict and how the relationship between CSR and company performance is affected (Gillan, 2006; Bhagat & Bolton,
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].
Corporate governance is broad term used to refer to the different policies and regulations that a company follows to ensure that the interest of investors, employees, customers and suppliers are maintained. It is meant to ensure there is no corruption, profit loss, and that the company is protected from any legal issues. A company can use one of several governance theories as a model to run successfully. Agency Theory and Stewardship Theory are two of the several theories used by companies. Agency Theory believes that shareholders interest requires separation of CEO and board of directors for a checks and balances effect. Stewardship theory believes that leaders have aligned goals and will work together
The argument of whether the separation of capital ownership and control is an efficient form of organization has constantly been a controversial issue. The criticism whether the controllers’ act is in the best interest of the owners’ wills never end as long as hired managers operate management. As the number of public companies has been increasing over the course of this century, meanwhile the American style of contact based corporation has become more common as well, the so-called “agency problem” has been concerned and examined more frequently from wider aspects. The common theory agreed by literates is that they consider that hired managers do not have to act exactly as they promised to security holders to maximize wealth of the firm; instead, they will try to deviate by adding self-interest of their own (Macey 2008). Fama, however, argued that managers should behave rationally and responsibly to maximize the value of the firm under the consideration of potential outside wage rate (1980). Both arguments will be justified and examined further in the article; resources/evidence from some recent explorations will also be evaluated. The issue remains unsolved due to complicity of theories, complexity of measurements and other contradictory factors; however, shareholders may still find some options to tackle.
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).
The Agency theory explains the relationship between shareholders and company executives and suggests that activities of firms are governed by the role of contracts to facilitate voluntary exchange. According to the agency theory conflicts exist when managers have selfish motives and do not always act in the best interest of the firm, but to increase their own wealth at the expense of other shareholders. The reason for this conflict is that shareholders want to maximize the return of their inves...
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.
K, . N., ER, w., DAVID, K., PAUL, M., WALTER, O., & EVANS, A. (2012). Corporate governance theories and their application to boards of directors: A critical literature review . Prime Journal of Business Administration and Management (BAM), 2(12)(2251-1261), 782-787.
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.
Institutional ownership or institutional investor is considered as a corporate monitor in many aspects that links to the performance of the company. The institutional investor need to monitor how the managers perform their duties ensuring that they put the company’s best interest rather than their own self interest. This is because, the manager which act as an agent to the company is the one who’s responsible to operate the business ensuring stability in performance of the company. This include examine internal control that exist in the company. For example, to avoid fraud or misrepresenting of the company’s data, the institutional investor needs to monitor the internal control system to be efficient and effective in delivering the best corporate governance practices in the company. Moreover, the institutional investor had invested large sum of money in the company which in return they will gained benefit in term of dividend which depends on the company’s performance during the year. According to Grossman and Hart, 1980, large shareholders may have a greater incentive to monitors managers than members of the board of directors, who may have little or no wealth invested in the firm. These events occurred when the large shareholders have the ability, materials, opportunity and can influence how manager operates the company. The hypothesis have been made by several researcher claimed that corporate monitoring by institutional investor can push the managers to focus on the best interest of the corporate performance rather than opportunistic or self-serving behaviour.
Corporate governance is the set of guidelines that determines the control and organization of a particular company. The company’s board of directors is in charge of approving and reviewing changes to this set of formally established guidelines. Companies have to keep in mind the interests of multiple stakeholders, parties who have an interest in the company. Some of these stakeholders include customers, shareholders, management, and suppliers. Corporate governance’s focus is concentrated on the rights and obligations of three stakeholder groups in particular: the board of directors, management, and shareholders. Corporate governance determines how power is split between these three stakeholders. A company’s board of directors is the main stakeholder that influences the corporate governance of a company (Corporate Governance).