The As A Self Regulating Social System

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

According to UK Law, the directors should act in good faith in the interest of the company, and exercise care and skill in carrying out their duties. The Company Law Reform Bill (2005) defines, in section 154-161, the directors’ duties as follows:

1. Does the board comprise a majority of independent directors? Ensuring that a majority of independent directors to monitor the actions of executive directors helps to address the potential for, or perception of, conflict of interest of executive director involvement in board decisions. A good corporate governance structure would encourage the board to regularly assess whether each non-executive director is independent.

To the extent of prevention of corporate failure, I argue that three ASX principles and recommendations could halt the demise of Dick Smith. Firstly, the 2nd principle which is “Structure the board to add value” by structuring the board with a majority of independent directors would prevent CEO dominance because some suggest that independent outside directors can reduce the influence of dominant individuals (ASX, 2014, p. 17). In accordance with Gallagher and Bennie (2015, p. 20), the independent directors are likely to focus on the company’s objectives and not to make decision relying on others. Furthermore, an addressing of independent directors would reduce the reliance on management, and create the effectiveness on monitoring (Dechow et al. 1996 cited in Christensen, Kent, and Stewart (2010)), as well as capability to lessen the conflict of interest between managers and shareholders (Hardjo & Alireza, 2012, p. 4). Thus, DSE’s board would be more active to monitor the CEO’s performances because independent directors pay attentions to the interest of company (Gallagher & Bennie, 2015, p. 20) and shareholders (Hardjo & Alireza, 2012, p. 4)

Up to now no specific world-wide common understanding or single definition for “corporate governance” has been established. More generally, corporate governance can thus be understood as the totality of all national and international regulations (e.g. Sarbanes-Oxley Act), rules, values and principles (e.g. UK’s “Code of best practices”) that apply to businesses and determine how they are steered and monitored.

* The roles and responsibilities of the board of directors in corporate governance and the way the board affects a company’s operation.

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 1800s, state corporation laws assisted in the creation of corporate boards, who could govern, much like state congresses, without unanimous consent of shareholders. This made the running of corporations much more efficient. As time passes, corporate boards seem to be gathering more and more power, particularly with the inception of large mutual funds and similar cash-building entities, which place another layer of organization between stakeholders and corporate governors.

Corporate governance lies at the heart of the way businesses are run. Of ten defined as the ‘way businesses are directed and controlled’, it concerns the work of the board as the body which bears ultimate responsibility for the business. Governance relates to how the board is constituted and how it performs its role. It encompasses issues of board

Robert E. Wright (2014) argued that the corporate governance in the late 19th and early 20th century, were run like ‘republics’ with many checks and balances against fraud and seizing power of managers or large shareholders. Governance goes back as there were always implementation of standards, regulation of prices as well as entry to trades. The pillar for modern company law is the concept of ownership and shareholder rights as this is identified by Tricker (2012). During the time from 17th and

This paper will be a literature review that discusses the notion that, the board of directors (the collective) as a self-regulating social system. This will be achieved by a systematic review of a collection of works in the area of corporate governance spanning the birth of the industrial revolution to the modern day. The areas of emphasis will be a view to identifying the key concepts, issues and laws created to better focus the actions of boards. In addition to identifying the locations for each of these developments and how this has led to divergent practices across the globe. Following the review of the literature the author of this paper will seek to discern the current direction and nature of corporate governance in the future. The

While shareholders’ agreements take away the directors’ discretions across a range of important matters, investors still claim to value the right to appoint a director. They actively encourage close relationships and communication between shareholders, directors and management. In fact, the size of many boards is determined by the maximum size of the shareholding that can be attracted without director representation. This frequently results in shareholdings of 5 to 7% appointing a director and, in combination with independent chairman, can produce boards of 15 or more directors.

The Board of Directors is defined as “a group of elected individuals who serve as representatives of an organizations’ stockholders” (Root). They are the decision-making power over management related policies and fiduciary duties of the organization. They make decisions to fire or hire the executive leaders, conduct performance evaluations on the company’s leading executives, and ultimately decide the executive’s compensation, as well as dividends to be distributed to the shareholders. The Board of Directors determine the organization’s strategic direction, and make sure the company is operating under the principles of the law to ensure the organization is conducting itself ethically, legally, and with social and environmental responsibility (Bateman 267).

Public debate regarding corporate governance issues tends to focus on one primary topic at a time, depending on the dictates of current events. Classified boards, “overboarding,” director compensation, risk management—the attention of the corporate governance community has been focused on each

Numerous reports on corporate governance have emphasised the desirability of increasing the number of outside directors on boards. An equally important and related issue is a growing insistence that the role of chairman and chief executive should be separate, though on this issue there is less unanimity in the U.S. than in other countries.