Corporate Governance frameworks - Essay Example

Summary and conclusions Page 10 7. References 1. Introduction Corporate governance is vitally important to the economic well being of a modern capitalist economy. In complex organisations with variety of interested parties and many potential conflicts of interest, corporate governance can inform these parties about the organisation’s activities and also protects stakeholder’s rights through monitoring and control. This report aims to critically compare the UK and US systems of corporate governance, where this term is more narrowly defined as relating to the accountability of decision makers, and excludes from consideration the role of corporate governance in increasing organisational efficiency.

The report is structured in to six sections. The first section, this introduction, explains the purpose of the report and gives a broad outline of the way the argument will be constructed, as well as what bases of evidence it will draw from. The second section gives an overview of the generic role of corporate governance, its history and development, as well as explaining why it is necessary. The third section will describe the different approaches to corporate governance in the United Kingdom and the United States respectively. . The UK and US responses to such scandals will be contrasted and the relative advantages and disadvantages of their systems of corporate governance will be discussed.

the The sixth and final section will summarise the arguments made and outline the major conclusions resulting from the analysis. 2. The aims of corporate governance Although, various definitions of corporate governance exist, this report will take the following as its working definition (Sir Adrian Cadbury (2000) in 'Global Corporate Governance Forum', World Bank), because it effectively highlights the key issues that the following analysis will address: "Corporate Governance is concerned with holding the balance between economic and social goals and between individual and communal goals.

The corporate governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources." This neatly summarises the reason for the institution of corporate governance. Modern businesses have a variety of stakeholders whose interests may conflict; however, it is the case thatthe control of the organisation is skewed heavily towards a single subset of this group, the managers. Therefore, a system of checks and balances is required to safeguard the rights of all stakeholders.

Corporate governance can be viewed either through the ‘lens’ of Principal-Agent Theory, or Stakeholder Theory. Principal-Agent Theory is in the tradition of economic studies of asymmetric information (Mirrlees, 1975) and theories of the firm (Gibbons, 2005) and provides a focused analysis by distilling the problem down to the basic separation of ownership and control – that shareholders own the