Emerging Issues in Corporate Governance and Accountability - Term Paper Example

Governance is a concept that began with human civilization. The term “governance” was introduced to the public and into the markets in the 14th century. Since then, the term was ever heard of again until recently when conflicts between different parties in businesses began to arise. Notably, conflict of interest between the managers of the firms and the shareholders led to the re-introduction of the term to business. The economic aspects such as transaction costs led to the existence of firms as they were forced to internalize some of these costs or avoid them together (Mir & Seboui, 2008).

Whatever action they took had some consequences. For the contemporary firms, legal issues and systems were introduced to the business environment as they foster the growth of the corporations; this is because they permit the incorporation of the companies and other business entities as separate legal entities free from the company's owners.There is a transfer of power from the business owners to the managers in any corporate governance set-up. The managers are more experienced in running businesses than the owners.

Therefore, the owners delegate their duties to them under a contractual agreement hence granting them the necessary powers to run the affairs of the organization. After some time, the managers might develop the habit of assuming the powers of the defacto owners instead of de jure owners; this is where they start pursuing their interests rather than the interests of the company and the shareholders. Neglecting the interests of the shareholders and concentrating on their own is known as a moral hazard issue, and also happens when the managers start using the firm's assets and resources for their gains and benefits (Mir & Seboui, 2008).

Therefore, corporate governance came into play to protect such issues from happening as it can lead to the bankruptcy of the company. The primary function of corporate governance is to improve profit margins.