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Transparency in Corporate Governance - Essay Example

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Transparency in Corporate Governance Name Institution Corporate governance is a term that gets used to describe the system through which a company gets controlled and directed. Transparency in corporate governance, hence, is the communication, openness, and accountability in the system through which a company gets controlled and directed…
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Transparency in Corporate Governance
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"Transparency in Corporate Governance"

Download file to see previous pages Transparency in a company is vital because it increases the confidence in the management of the company by its shareholders and other stakeholders. This consequently leads to the shareholders willing to invest more in the company which in turn, eventually, reduces the cost of capital. Being transparent also helps a company’s management to fight off corruption and fraudulent activities that would otherwise be rife and detrimental (Hermalin &Weisch, 2007). With all these factors put together, the company’s productivity, and eventually, its productive capacity increases. For a long time now, corporate governance has undergone different overhauls so as to increase the level of transparency. This is through various means such as an increased control on how financial reporting gets done and who exactly does it. These control mechanisms ensure that what gets measured, accepted and reported to the public is true and fair. There are also various trends currently in the market that give the procedure on how a company should be audited. Auditing is when an external entity, separate from the company, goes through the company’s reports and records. It gives its assessment and opinion of fairness and truthfulness of the company reports to the public (Shleifer, 1996). There are also other measures that ensure transparency gets achieved. These measures include laws, policies, Companies Act, Parliamentary Acts (Hermalin &Weisch, 2007). Reporting and adhering to these policies, laws and acts, however, comes at a price. Governments around the world exempt the small companies from fully complying with these stringent measures. It is mandatory, however, for these small companies to prepare their own reports as a performance measuring tool (Hermalin &Weisch, 2007). In the McBride scenario, the CEO of the McBride Financial Services receives an email from a recently added investor. The Beltway Investment is the investor that has invested in McBrides Company. It is in the email sent by their principal in who reiterates the need for transparency and use of best practices. He tells the CEO to run his company as would see fit but in turn, the investment firm would need to be shown the reports of the company’s progress. This is a way of ensuring transparency in corporate governance gets achieved by equitable treatment and rights of the shareholders getting observed. The management should do this by openly and effectively communicating the information to the stakeholders. They should also encourage them to participate in the company’s general meetings, so as to give their thoughts and opinions (Solomon, 2010). In the scenario, one also sees the management chain of command. The CEO, Hugh McBride makes the crucial decisions such as who will sit in the company’s board of directors and his subordinates implement these decisions. They deal with a wide range of matters from public relations to issues to do with governance of the company (Solomon, 2010). We also see that when the stakeholders, in this case Beltway Investments, know of their rights and practice these rights keeping the management on toes. This gets clearly seen when Doug, the Beltway Investment’s principal sends the CEO the email. The CEO, in the following days, communicates to his subordinate to get an accounting firm to audit their reports. The urgency becomes also portrayed when he says ...Download file to see next pagesRead More
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