Corporate governance - Essay Example

Governance is the way or the structure the CEO, the owner and board of directors together with direct, control, coordinate the business in terms of managing the assets, processes and systems within the organizational setting (Pounds, 2008, YouTube video). Corporate governance is the legal as well as organizational framework, or certain principles and processes by which corporations are governed. Corporate governance thus relates to powers, accountability and relationships of those people who are involved in the direction and controlling of the corporation (Plessis, Hargovan and Bagaric, 2010, p. 4). As Tricker (2012, p. 4) pointed out, all different types of corporate entities need governing body.

For a company, the governing body is its board of directors, and for other types of business firms, it may be a council, a court, a committee or an agency. Corporate governance is thus all about the way the power is exercised over corporate entities. Importance of Corporate Governance Corporate governance is more concerned with directing and controlling of corporate bodies mainly with a view to enhance shareholder value. Since the processes and systems of corporate governance lay the foundation for business growth in the future, it positively impacts the profitability and overall business performance and this is the reason why it ensures enhanced shareholder value.

Firms with credible corporate governance in place are free to go about their own ways to increase shareholder values and continue to gain growth. New investors can be encouraged to invest in securities or existing investors can be motivated to expand their investments only if there is effective corporate governing system at corporate levels. Are companies run ultimately for ‘profits’, or ‘shareholder values’ or social responsibilities? This is perhaps an overwhelming academic debate. Corporate governance doctrine underlies the fact that a company must be run for ‘shareholder value’. Lynn A. Stout, a modern thinker in the field of corporate governance and professor at Cornell Law School, argued that corporate governance is more likely to amount shareholder dictatorship.

She is of the strong side that ‘shareholder value’ concept of the corporate governance is not the modern corporate practice. Shareholder value thinking has in recent years been found to harm investors overtime (Stout, 2011, YouTube video). Effective governance practices are becoming sources of competitive advantage among world economies to attract wider international capital. One of the main reasons why there has been considerable prominence in corporate governance in recent years was that companies were in greater need to access all types of financial resources and also to harness the power of private dictatorship for the social as well as economic wellbeing.

Good governance not only ensures better shareholder values, but also speeds up competitive adaptation. Good corporate structure to eliminate unethical behavior As to the core of corporate governance, the board of directors is supposed to fulfill three fundamental responsibilities; protecting stakeholder rights and interests, managing the risks and creating business values. These functions are closely related to eliminating unethical and unscrupulous practices that the board or agencies may practice. For