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Impact of Sarbanes Oxley Act, 2002 on GlaxoSmithKline UK - Essay Example

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The term corporate governance basically covers the systems and processes which are established by the corporate entities for ensuring proper accountability. Corporate governance ensures the establishment of relationships and their maintenance among both controlling and minority shareholders, the Board of Directors and other external stakeholders of the corporate entities…
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Impact of Sarbanes Oxley Act, 2002 on GlaxoSmithKline UK
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Download file to see previous pages Globally, several legislative and administrative requirements in the form of new accounting standards, requirements as to detailed disclosures in financial statements and stricter enforcement of regulations on securities exchanges have been prescribed to ensure that governance of corporate entities is maintained at levels that are beneficial to themselves as well as to the people dealing with such bodies corporate. In the past, corporate governance had been used to protect the interests of company stockholders. However 'Corporate Governance' has assumed a new dimension in the post 'Enron' and 'Post Globalisation' scenario as almost every major developed and developing nation ensures some sort of promotion and protection of corporate governance principles.
However there are certain basic views or models that describe the corporate governance practices universally. According to Tricker (1996) "Stewardship theory, stakeholder theory and agency theory are all essentially ethnocentric" Tricker (1996) observes although there is no change in the underlying ideologies there are conflicting theories of corporate governance established on the basis of the perceptions and expectations of the respective roles of individual, enterprise and the state. The basic principles of the different theories depend largely on the relationships that exist between these agencies.
The conflicting views on the corporate governance are presented below:
The Agency Model

Hawley & William (1996) state the emphasis of corporate governance lies in constructing rules and incentives in the form of implicit or explicit contracts for the purpose of aligning the behaviour of managers being the agents with the expectations of the owners being the principals. Under the agency theory of corporate governance it is assumed that the ownership of the firms is dispersed as the American 'modern' corporation. The main consequence of such a form of dispersed ownership is that there exists a gap between the owners representing the 'principals' of the firm and those who are responsible for the running the day to day operations of the firm who are known as 'agents'. Thus as Shelifer and Vishny (1997) state, "agency theorists aim to understand how investors get the mangers to give them back their money and hence minimize agency costs." According to Jensen & Meckling (1976) since the relationship between the owners and managers of a corporation is that of a pure agency relationship, the issues associated with the 'separation of ownership and control' in the modern ownership corporation are also mostly agency based.
The Stewardship Model

In the stewardship model, ...Download file to see next pagesRead More
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