Corporate governance - Essay Example

Some of the major differences between the corporate governance between the stock exchange company and the government owned organization are listed below: 1. One of the key differences between the government owned and a public limited company is the shareholders. Stock listed public limited companies have the shareholders who invest their own money to fund the corporation. As such the managers therefore become responsible to the shareholders and all their actions are directed towards the maximization of the shareholders’ value.

In government owned organization, however, government is the only shareholder therefore the managers may not be answerable to other stakeholders such as general tax paying public. (Whincop) 2. Stock market organizations are often formulated in order to maximize the profits for the shareholders and the corporate governance mechanism is implemented in order to ensure that the rights and interests of the shareholders are protected. Government owned corporations are often formulated in order to create a monopoly and support the market in case of market failure therefore managers in such organizations often have to take the actions which may not result into the welfare maximization of all the stakeholders. 3. Corporate governance within Stock Exchange Company requires the placement of an independent board of directors to oversee the conduct of the managers as well as serve as effective checks and balance system within the organization.

Government owned organizations however may not have an independent board of directors to oversee the actions of the managers working in such organizations. 4. Corporate governance principles for the stock exchange company also require the constitution of an independent audit committee of the board of directors. This audit committee does not report to the Chief Executive or other managers but rather report directly to the board in order to maintain its independence. Audit committees within government owned organizations are often non-existing as the audit of such organizations is either done by the government’s own audit department or through other independent third party auditors.

As such there are hardly any independent audit committees to oversee the financial aspects of the organization. 5. There is hardly any mechanism to replace the directors of the government owned organizations as many change when the government or ministries change. However, for a stock exchange company there is prescribed rules under which the directors can be replaced or removed from their positions. Corporate governance principles further require that the firms need to ensure that the directors are replaced or rotated through an election mechanism to ensure transparency in their appointments however, this may not be the case with the government owned organizations. 6. For a stock exchange company government serves as the regulator also thus separating the shareholders from the regulator.

However, for a government owned corporation, government not only works as the shareholder but as the regulator also thus effectively ensuring a conflict of interest. In such situation the government itself protects its own interests while ignoring the need of an independent mechanism to oversee the regulatory aspect of the government owned organizations. Bibliography Whincop, Michael J. CORPORATE GOVERNANCE IN GOVERNMENT CORPORATIONS. Burlington: Ashgate Publishing Ltd, 2004.