One of the foremost objectives of any business is profit maximization; each and every organization wants to run a profitable and sustainable business activity alongside satisfying the needs of its customers. It wants to set a mark, and be differentiated amongst its competitors whilst increasing its market share value.
However in regards to the prospects of profit maximization, every business must ensure that it adheres to a strict code of conduct, enforce internal controls and abide by set rules and regulations. Corporate governance refers to such a system by which companies are controlled and governed by. It provides a core set of guidelines and principles towards compliance of regulations in the corporate environment with business being conducted in fairness and integrity (Thomson, L. 2009). It monitors that the transactions and overall operations of a business are carried out in an ethical manner with transparency and no ambiguity. Furthermore, it looks into the company’s management and its effectiveness, the governing committees, and relations with shareholders (FRC, 2011).
In recent times, corporate governance has gained interest due to the deceptive and misleading business practices. Businesses falsify the disclosure of their financial statements in order to improve profitability. In such transgression, many have been found victims of accounting fraud and corporate scandals. Since the bankruptcy of Enron and WorldCom, 2 of the biggest scandals in history, governing bodies all around the world have taken a major stand in development of austere standards such as the Sarbanes-Oxley Act in the US and the Corporate Governance Code in the UK (Labaton, S. 2006).
In addition, this strict enforcement has...
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...porate accounting scandals. Although the indices provide an overall rating, individual variables must be looked into. Other corporate governance mechanisms which serve as determinants are a key to measuring efficacy of the framework. Subsequently, the actions of the management and board of directors must be deeply taken into consideration as they might be prone to fraud and risk adherence in order to secure higher compensations. Segregation of duties must be ascertained in terms of the various committees on the board such as nominations, remuneration, and audit. Also into consideration should be if the corporate structure is performing collaboratively as a unit or not (Arguden, Y. 2010). Lastly, the culture and control environment should be assessed in order to give an oversight of the company’s internal operations including the code of conduct and policies within.
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