Shareholder Value and Current Financial Crisis: An Analysis of the Relationship

Corporate governance is a set of actions used to handle the relationship between stakeholders by determining and controlling the strategic direction and performance of the organization. Corporate governance major concern is making sure that the strategic decisions are effective and that it paves the way towards strategic competitiveness. (Hitt, Ireland, Hoskisson, 2017, p. 310). In today’s corporation, the primary objective of corporate governance is to align top-level manager’s and stakeholders interest. That is why corporate governance is involved when there is a conflict of interest between with the owners, managers, and members of the board of directors (Hitt, Ireland, Hoskisson, 2017, p. 310-311).

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

The primary objective of the manager is to please the stockholder by maximizing stockholder wealth.

The argument of Berle and Means (1932) on corporate governance formed the foundation for further studies by various researchers on the trend of corporate governance. Their study revealed the possibility of creating a separation of control between the mangers who run the large size corporations and the owners who are the provider of capital. This observation of a departure and separation of ownership and control gave rise to a situation where emphasis is now focusing on the behavioural aspect and topical theory of the firm.

Shareholder theory refers to a concept which recognises the responsibilities of corporations in the world now, be it economical, legality and ethicality (Solomon, pg 22). However, the idea is that the managers primarily have a task to improve the shareholders’ interest in the way that is approved by law or social values. The theory is that they might own shares of stock in business and has employed certain managers to run their company and would have a reward investment risk. On the contrary, they would also face a downfall which is, they focus too much on profit even at expenses of illegal and unethical

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

Phenomenal growth of interest in corporate governance has emerged in recent years. The body of literature on the subject has grown markedly in response to successive waves of large corporate failures. Furthermore, there have been numerous attempts to define what constitutes ‘good corporate governance’ and to provide guidelines in order to enhance the quality of 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.

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 separation of the owners and managers of the business is the central reason for the existence of what is now referred to as corporate governance. As discussed by Smith (Smith, 1776),Berle (Berle, 1932) and Tricker (Tricker, 2012), this created two differing schools of though. The first is referred to as agency theory, which proposes that those placed in charge of a firm will act in their best interests and not those of the shareholders. This argument is countered by stewardship theory which takes the view that those charged with being directors will seek to act in the best interests of the shareholders.

Corporate governance refers to ‘the ways suppliers of finance to corporations assure themselves of getting return on their investment’ (Shleifer and Vishny, 1997: 736). Corporate governance discusses the set of systems, principles and processes by which a

Corporate governance is an increasingly important topic in this age of globalisation, it is a global occurrence which in turn makes the subject complex, with issues of ownership, cultural, legal and other structural differences being involved. From this broad scope, it is discernible that the functions of the board are inseparable from the topic of corporate governance and in turn what effect these have and will potentially have on the share price in the future.

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

Corporate governance is now an international topic due to the globalisation of businesses (Reed, 2002). It also has several types of models. Every country adopts a unique set of corporate governance procedures that are based on such factors as the country’s legal and the financial systems, culture, corporate ownership structures and economic circumstances. However, Judge (2010) challenges scholars and practitioners to develop globally applicable models of corporate governance. Models of Corporate governance; The American rule-based model, The UK/Commonwealth principles- based model, Japanese business network model, The Asian

Corporate Governance refers to the way a corporation is governed. It is the technique by which companies are directed and managed. It means carrying the business as per the stakeholders’ desires. It is actually conducted by the board of Directors and the concerned committees for the company’s stakeholder’s benefit. It is all about balancing individual and societal goals, as well as, economic and social goals. Corporate Governance is the interaction between various participants (shareholders, board of directors, and company’s management) in shaping corporation’s performance and the way it is proceeding towards. The relationship between the owners and the managers in an organization must be healthy and there should be no conflict between the