Finance - Corporate Governance - Essay Example

How do the investors of a company ensure that the managers of a company are not involved in stealing their money or making bad investments in some projects? How do the investors exercise their control over the managers of the company? This study discusses all relevant issues related to answering all these three questions mentioned above. The discretionary powers and regulatory controls of primary investors of an organisation like the shareholders and creditors of the company have all been discussed in this study. 1. Corporate Governance – Definition One particular formal definition cannot be assigned to the term “corporate governance”.

It is used in many different ways. In general the term “corporate governance” describes a wide variety of issues which are related to the different ways through which organisational activities can be controlled and directed. Broadly speaking it deals with the code of conduct of the business activities followed by the companies. Corporate governance also constitutes wider issues which are related to improvements in the performance of shareholders. . and the company is accountable to each of them (Turner, 2009, p.5). 2.

Importance of Corporate Governance The primary objective of any business organisation to develop a well structured corporate governance mechanism is to ensure that it provides maximum returns and benefits to the economy as a whole which includes all its stakeholders. Hence, corporate governance includes the inter-relationships between the shareholders, corporations and creditors. It also includes relationships between financial institutions, financial markets and business corporations. The issues related to corporate social responsibility (CSR) is also included under corporate governance which is based on the activities of the organisation in relation to its business environment and culture (Claessens, 2003, p.5). In today’s world issues related to corporate governance are at top priority for any business organisation.

Certain events of business failures, Global Financial Crisis (GFC), corporate frauds and scandals in the recent past have contributed towards the need of significant development in the field of corporate governance in the world. Most of the incidents of scandals and frauds in the business environment are contributed towards the lack of corporate governance in the part of managers, directors and other insiders of the companies. Moreover the ultimate sufferers are none other than the stakeholders of the companies itself.

In today’s era of globalised economy, where most of the companies are operating all around the world, there is an opportunity for reaping up huge profits in business. However, it has also added to the company’s worries about the increasing competition in the market and significant fluctuations in capital flows. Moreover investors are now more concerned about