Corporate Governance Of A Company

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“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…show more content…
Thus, avoiding the involvement of executives in financial crimes, such as theft, embezzlement or bribery. As mentioned in Business Accounting by Collis, Holt, and Hussey (2012, p. 248), former companies’ executives of major UK companies, Maxwell Communications, the Bank of Credit and Commerce International and Polly Peck International, who were involved in such financial scandals in the early 1990s, were one of the main reasons for the establishment of the Committee on Financial Aspects of Corporate Governance, or known as the Cadbury Committee, in 1991 by the Financial Reporting Council, the London Stock Exchange and accountancy profession.

In the corporate’s perspective, having shareholders’ binding votes on executives’ salaries also helps organisations to assess performance targets. It is viewed as a “value enhancing monitoring mechanism for firms with weak penalties for poor performance.” (Ferri, Maber, 2012, p. 528) An example of a corporate’s ignorance on supervising their director, is the collapse of Barings Bank in 1995 caused by the lack of risk management and internal control by the company. (Chua-Eoan, 2007) Despite the fact when corporates’ performances are found to be disappointing, the executives are still receiving pay rises or bonuses, such as companies like Aviva, whose chief executive, Andrew Moss, received compensation for losing
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