Debate Regarding Corporate Governance

Corporate governance in itself has no single definition but common principles which it should follow. For example in 1994 the most agreed term for corporate governance was “the process of supervision and control intended to ensure that the company’s management acts in accordance with the interest of shareholders” (Parkinson, 1994)1. Corporate governance code is not a direct set of rules but a self-regulated framework which businesses choose to follow. This code has continued to change in the past 20 years in accordance with what is happening in the business world. For example the Enron scandal caused reform in corporate governance with the Higgs Report which corrected the issues which were necessary. Although it does not quickly fix problems, it gives a better framework to

Corporate governance can address agency problems, they are the rules that dictate the company’s behavior towards it’s directors, managers, employees, shareholders, creditors, competitors and community.

The global market has shown exemplary contribution to the growth of the world's development until recently where financial crisis have been bombarding most economies. As a result, the cost of livelihood had been unaffordable to many who live below the dollar. The monetary crisis has led to the lowering of many currencies against the dollar, hence advancing the economy crisis to most worldwide nations. This turn of events has been attributed to the lack of exercise of business and management ethics in many multinational companies, firms and investments. Financial scandals have been the order of the past twenty years leading to the sweep over of the flourishing global market. The scandals, especially in larger companies and multinational, are spurred by inter and intra-conflicts in their organizational structures.

Farrar, J. (2008). Corporate Governance: theories, principles and practice. 2nd ed. South Melbourne, Vic: Oxford University Press

ITC Ltd.’s strategy plan for compliance with the current acceptable standards or norms relative to social responsibility today is well thought out, especially for a company that sells potentially dangerous products, and try to meet and listen to all demands and laws in place since the start of their business. Even though in 2014 a new bill was passed for the majority of companies to build accountability and also have the government looking over the private sector (Banerjee, 2013). “The CSR provision requires affected companies to spend at least 2 percent of their average net profits made in the preceding three years on CSR” (Banerjee, 2013). Even though this bill has caused a lot of uproar for companies, ITC has actually already been

In my review of A Primer on Corporate Governance by Cornelis A. de Kluyver I intend to examine, evaluate, and break down his key points. The book provides a general view on how corporations govern themselves, and the internal and external forces that effect and constrain them. The biggest external force is of course the US Government and the variety of laws and regulations imposed upon corporations. Internally, they are managed by the CEO and board of directors along with a set group of committees and corporate guidelines.

The best alternative offered by the team is option three to offer Data Equipment a 10% discount to take the product by December 31. For the company to present its business in the financial position it would like in a legal manner aligned with accounting standards Data Equipment has to receive

Most corporate financing decisions in practice reduce to a choice between debt and equity. The finance manager wishing to fund a new project, but reluctant to cut dividends or to make a rights issue, which leads to the decision of borrowing options. The issue with regards to shareholder objectives being met by the management in making financing decisions has come to become a major issue of recent times. This relates to understanding the concept of the agency problem. It deals with the separation of ownership and control of an organisation within a financial context. The financial manager can raise long-term funds internally, from the company’s cash flow, or externally, via the capital market, the market for funds

In the corporate form of ownership, the shareholders are the owners of the firm. The shareholders elect the directors of the corporation, who in turn appoint the firm’s management. This separation of ownership from control in the corporate form of organization is what causes agency problems to exist. Management may act in its own or someone else’s best interests, rather than those of the shareholders. If such events

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).

An agent is hired by the principal to perform some duty that benefits the needs of the principal. The agency problem is an issue that occurs when the agents use their authority to make decisions in their own interest at the expense of the principals. For example, company managers (agents) were put in place to make decisions that maximize the wealth of the shareholders (principals) but may instead engage in empire-building or may make inefficient company decisions for job security. In order to mitigate these potential agency problems, several mechanisms have evolved. These include directly tying the compensation of managers to the success of the firm; oversight and influence by the board of directors as well as outsiders such as security analysts, creditors, or large institutional investors; the threat of a proxy contest by unhappy shareholders to replace the current management team; or the threat of takeover by another firm. However, most of these mechanisms have a low chance of success or can create other problems. The best mechanism that prevents agency problems is the threat of takeover by another firm. If the

At Paramount the unitary board exists, where according to the textbook, a unitary board is when a company has a single governing body (Tricker 2009). A non- executive director is defined as a person who is not involved in the day to day management of an organisation but rather in business tasks such as strategic planning, and monitoring of executive directors. An executive director tends to be more involved in the managerial aspects of the company.

Agency problem is a potential conflict between the agent and shareholders in the interest. It is shown that ownership is separated from management. This cause not only is the divergence of ownership and control, but also the information is asymmetrical. When ownership is separated

Agency Theory is tied up with analyzing and resolving any current issues that exist between their management team and owners. In Agency theory, way of think may

As explained by Schelker (2013), the agency problem between the owners and the management of a firm is at the heart of the corporate governance literature. Hence, there is a need for a