Does Corporate Governance Enhance Firm Performance?

7254 Words Oct 15th, 2009 30 Pages



Nations thrive on the performance of their economic units the major part of which are business firms that operate in their corporate jurisdictions. The quality of performance of these firms is of great interest to governments because by them a great amount of the degree of economic development seen in a country is achieved. Governments fund their annual budgets to a great extend by the amount of proceeds that come from internally generated revenues a good part of which come from firms and corporations in the form of tax and other forms of direct and indirect support. These firms also support quite a lot of developmental projects in the
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The Federal Reserve Bank of Richmond defines the subject as “...the framework by which a company’s board of directors and senior management establishes and pursues objectives while providing effective separation of ownership and control. It includes the establishment and maintenance of independent validation mechanisms within the organization that ensure the reliability of the system of controls used by the board of directors to monitor compliance with the adopted strategies and risk tolerance.” But Andrew Graham sees it as the exercise of authority, direction and control of an organization for the purpose of ensuring that it’s (the organization’s) purpose is achieved. Thus, Good governance is about safeguarding the mission of the organization, establishing a values framework, ensuring that sound management and risk practices are in place, holding those under oversight to account and accounting to the broader public interest. Therefore, good corporate governance is not only about high financial performance, it is about high achievement and performance within the line of activities, purpose, vision and mission of an organization. In this sense therefore, corporate governance is not an exclusive preserve of profit-making organizations; it can be successfully applied to public sector/nonprofit organizations to achieve public governance objectives within the
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