The Concept of Corporate Governance - Essay Example

Business A: Corporate Governance Author’s name Institutional affiliation Business A: Corporate governance Introduction Small corporations are believed to be the primary drivers of the Australian economy. Additionally, some studies have tried to explore the issues relating to corporate governance as far as larger organizations are concerned. However, little study has attempted to examine how it impacts small corporations (Mallin, 2007, 45). The ultimate goal and objective of corporate governance should revolve around optimization of efficiency as well as productivity. In simple terms, it is acknowledged as the coordination of managing and regulating business behavior as well as harmonizing the interests of investors and external parties that revolve around customers, suppliers , governments, investors and local communities who can either directly or indirectly affected by the implications of the corporate conduct. In so doing, it ensures responsible behavior by corporations so as to realize the maximum profitability levels and efficiency for a company (Tricker, 2012, 21). Therefore, this article explains the relevance of corporate governance and its relationship with the financial performance of Australia’s small corporations using relevant theories (EDWARDS, 2012, 47). Summary of the main arguments Theories used to discuss the concept of corporate governance It is universally acknowledged that corporate governance is a widely studied topic in economics, accounting, finance, law, and management (Yongqiang et al., 2015, 33). According to this newspaper article, some literature has been postulated about traditional American corporations that boast of over a thousand workers and are in most cases publicly traded (Mallin, 2007, 46).However this article continues to postulate that, there are limited materials as far as the issue of corporate governance is concerned with small business corporations (Tricker, 2012, 23). Additionally, the article shows widespread evidence on the competence and effectiveness of a business board as a primary institute of controlling and managing of large corporations. As a result, this article continues to identify the differences that exist between corporate governance in small corporations and large corporations. Agency theory as applied in this article, explains that business governance revolves around three types of disagreements argues that occur between the following groups: First, shareholders and managers. Second, minority shareholders, and controlling shareholders (Effross, 2010, 98). Finally, the non-shareholding stakeholders and shareholders. Additionally, the governance problem that revolves around ownership separation and control in unique contractual arrangements is very rampant in large corporations. However, as compared to their liberal counterparts, control, and ownership is frequently focused on small firms which make the disparity between managerial self-interest and ownership relatively minimal in small corporations (Effross, 2010, 93). Moreover, as far as Agency theory may be appropriate for smaller firms, this article explains further that the process involved in decision-making and company structure control is minimally dispersed and it is more less complicated in small businesses. In the process, the role of the board in regard to monitoring is reduced. Nevertheless, a company's interests may also play a significant role in changing the management board’s function in small businesses. Small firms In Australia demand as far as corporate governance is concerned been limited by resource constraints (Yongqiang et al., 33). However, large corporations benefit a lot from the corporate governance regarding value creation efficiency improvement, cost minimization while small firms are very disadvantaged. In other words, Investors dedicated to small business is limited in Australia hence making the disagreememnt between minority shareholders and controlling shareholders a much-diminished concern in small corporations except for block-holdings. Therefore, one primary function of corporate governance as far as small organizations are concerned is dealing with the conflict that occurs as a result of the interest alignment between shareholding stakeholders and shareholders (Yongqiang et al., 33). Another argument pertaining corporate governance in this article is explained using contingency theory. The theory argues that corporate governance has to take into consideration environmental factors such as ownership characteristics and institutional environment (Yongqiang et al., 33). Although already existing research concentrates on governance in big business. Externally placed stakeholders such as lenders, customers, equity investors, and insurance companies increasingly need those small business to incorporate business governance regulations, rules as well as principles of publicly traded companies. In other words, there is, therefore, an increasing practical requirement for management dedicated and designed to for small business firms. Additionally, in contrast to modern corporations which possess vast economies of scale and scope, it is acknowledged by some scholars that, Small business play a very important role in the future world economy. Discussion in the context of the corporate governance issues raised in the article By considering the stakeholder theory that is employed in this section, identification, and modeling of the stakeholders of the company are made even easier. Additionally, it describes and recommends some techniques and methods by which management of a corporation can give regarding the interests of stakeholders. In other words, this theory revolves around the problem and the challenge of value-creation, the challenge of a managerial mindset and the challenge of a managerial mindset (Yongqiang et al., 33). To clarify further, the primary aim of most business is to bring back value to its investors, customers, suppliers and other external stakeholders. Besides, the essential function of business is to develop a set of the relationship among stakeholders of the enterprise. Moreover, a corporation revolves around how suppliers, customers, financiers, employees, managers, and communities interact to create value. In simple terms, the stakeholder’s theory emphasizes the significance and the reliance of business on different groups. In this case, it goes ahead to postulate that most business corporations are defined by fragments of individuals each trying to get something from the corporation. The unique role of the board According to this article, it is clear that there are five elements related to corporate governance which include strategy; performance, integrity, governance and talent. In most cases, the board cannot just assign these elements to the management team. Therefore, the following are some of the roles that the commission may perform on the elements: Governance: The Board sets up processes and structures to fulfill board responsibilities that consider organization aspects as far as regulations and management and investors are concerned. In other words, the board selects its leaders and members through a thoughtful and inclusive process aligned with the corporation’s strategy. Strategy: The board plays a vital element in the development of strategic plans and objectives that are in line with the company’s mission and the best interests of the corporation’s stakeholders (Fernando, 2009, 79). Additionally, the board also monitors management execution of the strategic plans that are approved by the company coupled with the transparency and adequacy of external and internal communication of the corporation’s strategic plans. Performance: The board has the mandate of approving the corporation’s strategy, financial plans, and annual operating plans of the company. Additionally, it also helps in monitoring management execution against the company’s established budgets and the alignment with the organization’s strategic objectives. Integrity: The board is also responsible for setting up the good tenor for the corporation while the company’s management adopts and implements procedures and policies designed to promote both appropriate standards and legal compliance with honesty, ethics and integrity throughout the society (Fernando, 2009, 78). Talent: The board evaluates, selects and compensates the CEO and looks after the programs and the skills of the corporation most especially those related to potential successors of the company and executive leadership in a very precise manner. Risk governance: The board comprehends and monitors the corporation's strategic, financial, and operational and compliance risk exposures while at the same time collaborating with management in establishing risk tolerances, risk appetite, and alignment with the company’s strategic priorities. Principles of corporate governance Shareholder recognition: It is important in maintaining a corporation’s stock price Stakeholder interests: taking time to deal and address other stakeholders such as customers and suppliers can also play a vital part in developing a positive image for the press and the community Ethical behavior: It is universally acknowledged that violations for significant net revenues can result in massive civil as well as legal problems for the company. Therefore, an ethical code of conduct should be set up for all the members and the company workers. In other words, so many corporations spend a lot to establish a brand image because it is critical to the business in the long-term. Transparency: Financial records, as well as forward guidance, should be set up without faking or exaggerating any accounts. Careful management: Corporate governance sees to it that, an organization is managed carefully because there are some various significant decisions which could play a very crucial role in benefiting an individual involved in the business such as the social welfare, directors, and the directors. Reason this argument are being made in the media In the modern world, societies hold the level of corporate governance very highly. One of the reasons so many corporations adopts this process is because they have a public reputation and image to maintain (Martin, 2006, 78). In this case, organizations can take control and more responsibility for its actions and in the process, allows the company to keep tables on everything that is going on and helps those in management to remain aware of the public image of the enterprise (Yongqiang et al., 33). With the way that modern corporations are managed, media plays a significant role in enhancing the role of corporate governance. It is hard for a business to be more successful by just depending on its profits alone because organizations are also evaluated based on its public reputation and image. Therefore, the media is used to help to establish corporate governance that will ensure that the corporation's image remain clean. In this case, corporate governance ensures that firms irrespective of Size ensure that there is ethical behavior, high level of awareness and comprehending what the public needs. Media will also play a vital role in promoting public acceptance (Calder, 2008, 67). As far as business is concerned, a corporation that boasts of corporate governance is received well by the public. Additionally, this is mostly because of the idea of transparency and disclosure. In simple terms, corporate governance is a way that a company policies itself (Yongqiang et al., 29). Additionally, this process is intended to increase the company accountability and to avoid massive disasters in the enterprise before they occur (Fernando, 2009, 78). In such cases, with full disclosure through the media and the ability of individuals who work for the company to obtain information efficiently and the general public as well, there is a high degree of trust between the company, workers, stakeholders, suppliers, and the company (Yongqiang et al., 37). Due to the way corporate governance is established, the media will ensure the public understands that there are lower cases of fraud and corporation-wide criminal activity in the corporation, which also plays a very crucial role in gaining the confidence and trust of the public. Another important role the media plays is ensuring that most companies in Australia understand the importance of corporate governance in corporations (Fernando, 2009, 78). Apparently, corporate governance plays a crucial role in mitigating risks or reducing the intensity and the level of risks involved in the corporation (Mallin, 2006, 47). Through this process, a company reduces the impact of scandals, criminal liability of the corporation and fraud related issues are prevented (Yongqiang et al., 33). In this case, because each and every member of the organization understands their roles, therefore, the actions of one individual does not mean the downfall of the global corporation but instead, it means that the person may be easily identified and punished for their actions. Conclusion When individuals think about corporations, it is only assumed that corporations are a primarily large company that possesses hundreds of employees, but instead, there are also thousands of small organizations. Additionally, with quite a large number of people working in business, there has to be an adequate structure and order that keeps the various departments’ communication areas easy and clear to understand. In other words, this is why the principles of corporate governance are essential. Moreover, the various duties, rights, and obligations that direct and control a corporation needs to work together to distribute the roles and responsibilities properly that those individuals who participate in corporate governance are advocating. Seemingly, some of those people involved in the company include; creditors, regulators, managers as well as those in the corporation’s board of directors. To clarify further, for smaller companies to compete effectively with public traded large corporations, they need to implement the rules, regulations, and guidelines of corporate governance. In this case, the board of directors needs to perform their work with the required level of ethical standards and integrity in all matters revolving around the management of the company. Therefore, the corporate government is paramount in ensuring the company irrespective of size is carefully managed to boost the company’s image and reputation. Reference list Calder, A. (2008). Corporate governance: a practical guide to the legal frameworks and international codes of practice. London, Kogan Page. Edwards, M. (2012). Public sector governance in Australia. http://www.jstor.org/stable/10.2307/j.ctt24h92b. Effross, W. (2010). Corporate governance: principles and practices. New York, Aspen Publishers. Farrar, J. H. (2001). Corporate governance in Australia and New Zealand. Melbourne [u.a.], Oxford Univ. Press. Fernando, A. C. (2009). Corporate governance: principles, policies, and practices. New Delhi, Pearson Education. Mallin, C. A. (2006). Handbook on International corporate governance: country analyzes. Cheltenham [u.a.], Elgar. Mallin, C. A. (2007). Corporate governance. Oxford [u.a.], Oxford Univ. Press. Martin, D. (2006). Corporate Governance: Practical guidance on accountability requirements: A specially commissioned report. London, Thorogood. Tricker, R. I. (2012). Corporate governance: principles, policies, and practices. Oxford, Oxford University Press. Yongqiang L., Anona A., Andrew C., 2015. The Relationship between Corporate Governance and Financial Performance of Small Corporations in Australia. Journal of business Systems, Governance and Ethics. Vol 9, No 2 (25-39) Read More