The intention of this study is corporate governance its development that is influenced by models from varied disciplines such as finance, accounting, economics, management, organizational behaviour and law. The paper by Letza, Sun and Kirkbride has been taken as a basis for discussion of the four models of corporate governance…
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It is an institutional arrangement for various corporate participants having direct or indirect interests in corporation like shareholders, managers/directors, creditors, customers, suppliers, employees, local communities, general public and government (Figure 1). Figure 1: Corporate Governance Relationships Source: (Letza, Sun & Kirkbride, 2004, p.243) The importance of corporate governance in 21st century has been highlight by series of corporate frauds like Enron, WorldCom and Tyco whose managers engaged in illegal reporting leading to loss of shareholder wealth. As shareholders in many countries are absentee owners and managers have the control and power over the organization’s activities, these managers can place their own interest before the interests of shareholders, therefore generating the principal-agent conflict. There are certain views regarding the convergence of corporate governance systems however such possibility is least likely to happen due to difference in corporate culture and ownership structures. In recent years many influential proposals have been made in UK regarding corporate governance such as Higgs 2003, Turnbull Committee 1999, Hampel Committee 1998, Greenbury Committee 1995 etc (Letza, Sun & Kirkbride, 2004, p.242). The legislative strategies place importance to the need of a single governance structure for the corporate world. However no single model of corporate governance has worked at all times. Presently there are four main perspectives on corporate governance that are discussed in the following sections. The Principal-Agent Model Considering a sole-proprietorship organization where the owner-manager is considering sale of a part of his interest to outsiders. As the owner-manager’s share will fall the incentive to...
According to the research findings the field of corporate governance is relatively new to the theory of organization. Although the issues of corporate frauds, social irresponsibility and abuse of managerial power that have led to corporate governance mechanisms are not new to the corporate world. The corporate fraud case of Enron, WorldCom and Barings bank has made the investors realize the governance issues of ownership and control. However the theories which form the theoretical framework of corporate governance have not been fully developed to provide a uniform solution to address agency problems. Based on the review paper by Letza, Sun and Kirkbride on corporate governance this project has been an attempt to critically analyze the models of corporate governance which have been categorized into two perspectives- Shareholder and Stakeholder. These models have been the much debated due their different approach towards the governing mechanisms and the changing relationship of management and shareholders and/or stakeholders. The principal-agent model has been the theoretical basis of the other three models however due to widely accepted flaw of equating wealth maximization with share price maximization has led economists to look beyond the shareholder wealth maximization objective. The myopic market model is similar to principal-agent model but is oriented more towards the internal mechanisms built on long-term relationship and corporate performance.
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“CONTEMPORARY CORPORATE GOVERNANCE ISSUES Essay Example | Topics and Well Written Essays - 2500 Words”, n.d. https://studentshare.org/business/1393872-contemporary-corporate-governance-issues.
The research has discussed the meaning and importance of corporate governance in order to assess the various theories and approaches of corporate governance followed by various countries. The various approaches of corporate governance followed by United Kingdom and USA have been compared in this paper.
The rise and development of corporate governance has brought into perspective the role, position, and importance of different stakeholders of a company. In most cases, the function, capability, and continuity of a company are attached to the behavior and relationships of different stakeholders
Companies in recent years started giving greater emphasis on effective governance with a view to ensure competitive position, attract sufficient capital, guarantee sustainability, and combat corruptions. Corporate governance practices are associated with the development of financial markets, because higher level of governance in most countries are related to larger securities markets and lower costs of external finance (Tang and Wang, 2011, 47).
The interests of various stakeholders and shareholders were compromised by the vested interests. Roberts, McNulty and Stiles (2005) have emphasized the importance of board members of the company who are endowed with huge powers that could be easily misused.
Most of the current financial scandals within major economies resulting into loss of confidence amongst investors have been attributed to failure of such economies and their business organizations to comply with
The traditional view was more of closed system thinking (Alphen, 2010). It lacked a well defined hierarchy system. The authority and powers were vested upon the owner of the company. There was no scope of creativity for the workers. The fault in any error
Corporate governance can be understood through various frameworks of the firm. Agency theory is one of those frameworks, and entails the separation of ownership and control of an organisation. In this case,
essitated the establishment of formalised governance structures to define the intricate relationships between the different entities in the organization while specifying the rules and guidelines to be used in the corporate decision-making processes (Vintila & Gherghina, 2012).
More importantly, the chapter dwells on the procedures and methodologies that will be involved in working on the paper. 21
Corporate governance in general has become the new crucible in which corporations are tested and declared worthy of the trust of
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