Corporate Governance

The article is written to help readers gain a solid understanding the roles of corporate governance, both inside and outside the company. Its goal is simply to impart information, not make claims or arguments on its own. I will be judging it mainly on the sources gathered, numerous examples and explanations given and the overall effectiveness it possesses in effectively communicating its ideas.

This was a very interesting article, in my opinion it brings to mind the derived phrase, which came first the chicken or the egg. Meaning, is corporate governance an attempt to control the results of unethical practices of corporations or is it meant to deter them. In reading this article, it is clear that certain corporations practiced unethical business behaviors for self-interest, but the questions this author have are: 1. Should corporate governance be regulated by the legislature as well as the organization and to what degree, 2. Is corporate governance, there to protect the shareholder or the stakeholder, 3. How effective is corporate governance on a global level. The need for a governance system is based on the assumption that the separation between the owners of a company and its management provides self-interest executives the opportunity to take actions that benefit themselves, with the cost of these actions borne by the owners (Larcker & Tayan, 2008).

The ASX Corporate Governance Council defines the ‘corporate governance’ as the framework of rules, relationships, systems and processes within and by which authority is exercised and controlled within corporations (Corporate Governance Principles and Recommendations, 2014). The term “failure” of a corporate can be described as “Insolvency” in Australia (Michaela Rankin, 2012). And the reasons for corporate failure can be grouped into six categories: 1. Poor strategic decisions. 2. Greed and the desire for power. 3. Overexpansion and ill-judged acquisitions. 4. Dominant CEOs. 5. Failure of internal controls 6. Ineffective boards(Michaela Rankin, 2012).

Board practices. The OECD reports (2008 & 2009) found weaknesses in board composition, competence and consequential performance. Further, problems with the non-independence of directors and the sharing of the CEO/Chairman roles were raised. This relates to ASX principle 1 – Lay solid foundations for management and oversight, and principle 2 – Structure the board to add value.

Corporate governance is also the way a corporation policies itself. The method is governing the company like a sovereign state, in stating its own customs, policies and laws to its employees from the highest to the lowest levels. Corporate governance is intended to increase the accountability of the company and to avoid massive disasters before they occur. Well-executed corporate governance should be similar to a police department’s internal affairs unit, weeding out and eliminating problems with extreme prejudice. The corporate governance mechanisms provide assurance that the people who sink in the capital will get back the return on this capital.

The debate regarding corporate governance can be traces to the early 1930’s with the most notable publication being ‘The Modern Corporation and Private Property’ by AdolfBerle and Gardiner Means. In their publication, Berle and Means noted that despites presence of wide dispersion of ownership of firms’ and the subsequent separation of control and ownership there did not exist any check to control the executive autonomy awarded to corporate managers. Their ideas now known as the agency theory are concerned about the possibility of agents employed as professional executive to act on the behalf of business owners, serving their own interests and not those of the principals. This theory asserts that in order to deal with this problem,shareholders must incur ‘agency costs’. ‘Agency costs’ are designed to provide incentives to the professional executives so that they can align their interest to those of the shareholders (Robert. 2014).

Corporate governance refers to a framework of processes and practices which businesses follow as a guideline, this includes the way they conduct decisions for corporate affairs and the way which they pursue business objectives. This structure is applied by a board of directors to ultimately ensure that the company’s relationship with stakeholders is transparent and fair, which puts the interests of the company in line with their stakeholders thus ensuring accountability. A part of the corporate governance structure is that of executive compensation; this is a key aspect as compensation policies and practices are vital for the long-term sustainable performance of a company, which can impact shareholders and other stakeholders alike. Executive compensation consists of monetary and non-monetary benefits given to executives within organizations; benefits include salary, bonuses and stock options. The idea of executive compensation is to help attract the right person with qualities needed for that job whilst rewarding and incentivizing them to perform better for the company, enforcing the idea of performance related pay.

What do you consider to be the most important issues that need to be addressed by organizations seeking to develop their risk management capability?

Williams argues that ‘a key feature of Australian corporate governance is the extensive regulation and personal liability of directors.’ Personal liability is imposed on directors under not only trade practice laws, but also in taxation laws and remuneration reporting requirements under the Act. The ‘ad hoc’ approach of reform in Australia has resulted in the current over-regulated system. Such over-regulation has been found to influence directors to concentrate on compliance with laws, rather than actual business issues and opportunities at hand, this could be detrimental. Indeed, corporate collapses have led to an increase in the development of regulation, in turn creating greater director duties and reporting requirements, again creating more collapses continuing the pattern. Therefore, better corporate governance involves aligning the interest of managers and shareholders closer to the interests of the shareholders, without creating additional obligations for executives.

*Jaspreet Kaur, Lecturer in Department of Commerce, Sri Aurobindo College of Commerce and Management, Ferozepur Road, Ludhiana. E- mail: jas_2347@rediffmail.com, Phone No: 9915509226

Issues regarding corporate governance of companies are growing in importance. Corporate governance involves ‘the system of rules, practices and processes by which a company is directed and controlled’ (Investopedia, 2014). A company should treat all its stakeholders with respect and integrity. A controversial branch of governance is the extent to which executives gain compensation. This may or may not reflect their performance or be within the best interests of their shareholders; who are the owners of the company. Since the formation of the limited company, whereby management is separated from ownership an agency problem has emerged, as executives and other directors’ aims may not be in line with shareholders’ interests. Different

The purpose of this report is to illustrate what corporate governance is and the problems that are found within the governance. This report will also analyse what agency theory is and why they recommend an independent board structure and the use of equity-based compensation to resolve the corporate governance problem.

“Corporate governance, according to the Organisation for Economic Cooperation and Development (OECD), is ‘the system by which businesses are directed and controlled.’” (cited in Britton & Waterston, 2010, p.235) Corporate governance of a company maintains the welfare of the stakeholders in an organisation. Stakeholders are people who are directly affected by the company’s actions and consequences, such as the directors, managers, employees, auditors, and shareholders. Executive compensation is an important part of the corporate governance. It is a financial return for the executives’ services to the company, which is devised to ensure that the directors are “kept in line” in terms of their actions and performance in the business’s

4. The article supports the idea of good corporate board of governance leads to increased firm performance. For example with increased operating performance

Corporate governance is the wide term which defines the procedures, traditions, arrangements, laws and establishments that coordinates the associations and enterprises in the way they act, regulate and control their operations. It attempts to accomplish the objective of the association and deals with the relationship among the partners including the governing body and the shareholders. It likewise manages the responsibility of the people through a component which diminishes the key specialists issue in the association. Fine corporate administration is a fundamental standard for setting up the striking speculation environment which is required by aggressive organizations to increase solid position in effective money related markets. Great corporate administration is principal to the economies with broad business foundation furthermore encourages the accomplishment for enterprise. (1). A decent corporate administration can happen in the association by putting the harmony between the proprietorship and control furthermore among the interests of partners of the firm. This methodology may be useful in building up the positive state of mind among the director and shareholders and lessens the organization issues in the organizations.