Corporate governance involves ensuring accountability, fairness, transparency and balancing the interests of stakeholders in companies.
Corporate governance is always needed to keep checks and balances when it fails it opens the door for many problems as was seen in the Enron case and other corruption cases.
Yes, very much. If not the concept of 'corporate legal entity' would be in danger. It survives or responsible regulation by state. Shareholders and all other stakeholders look towards fairness in the company governance as the only hope to protect their interests. State should create a facilitative and regulatory framework through which public agencies ensure compliance with all the regulations. Enlightened companies go beyond the law to ensure that they provide a competent, thoughtful, fair, competitive, and accountable governance structure so that it builds a company brand, and every one gains from that.
Dear @Mahfouz, I think that corporate governance is necessary for organizing relationships among shareholders to ensure transparency and balancing the interests of stakeholders in the company, especially the small investors.
I agree with you, Abedallah, corporate governance is necessary for organizing relationships among shareholders.
Corporate governance helps in organizing relationships among shareholders. People tend to believe more in a corporate body than in a single handed conglomerate. Probably because many people are answerable to the share holders than a single one, about a downfall or a crisis.
Corporate governance system owing to greater accountability, transparency and balancing thus reliability is definitely better than sole governance as it can address and take care of the interests of stakeholders in a better way and sustain the relationship among stakeholders at the same time.
Yes, Corporate governance is needed to avoid catastrophes! I think that this is not enough! We need laws and control offices for banks and wall street system! Otherwise the economic crises would be very usual event.
Dear Mahfuz,
As it is mentioned in all discussions, corporate governance essentially involves balancing the interests of the many stakeholders in a company with the relationship of shareholders, management, customers, suppliers, financiers, government and the community. It provides a framework to attain the institution’s objectives.
Transparency and fairness are tools of good governance. They help ensuing strategic plans of any organization or institution
It depends partly on whether you think the market is the best and sole basis for allocating goods. If you do, you might see 'corporate governance' as an activity in one of two ways - either as supporting exchange and market mechanisms (increasing visibility and transparency and ensuring firms play by the 'rules of the game'), or as distorting markets (because it leads to interventionism or muddies the relationship between the firm and its shareholders, or distracts the firm from its core responsibility of making profit to something that is vaguer).
Sometimes people differentiate between these two in terms of shareholder/stakeholder views of the firm.
If you don't see the market as the best and sole basis for allocating goods then you certainly should see a role for CG (but you also would not be likely to talk just in terms of shareholders, you would have to consider stakeholders too).
Shareholders and other stakeholders look towards fairness in the company governance as the only hope to protect their interests. Corporate governance is essential for organising relationship with shareholders.
Yes, good corporate governance is about building a relationship of trust not only between shareholders and managers but also between minority and majority shareholders. The effectiveness of a corporate governance system can be measured from the mechanisms that are put in place to protect the interests of minority shareholders. Why minority shareholders? Minority shareholders are the least powerful stakeholder group in the corporation due to their weak economic power within the corporation.
Continuity of the corporation as a going concern is absolutely essential for protecting the interests of all shareholders and building a strong relationship among all shareholders. Good governance is a catalyst for continuous survival of a corporation.
If interested, please see R. Monem (2011), The One.Tel Collapse: Lessons for Corporate Governance, Australian Accounting Review.
http://www98.griffith.edu.au/dspace/bitstream/handle/10072/42673/74746_1.pdf?sequence=1
Thank you Reza. I have seen "The One-Tel Collapse: Lessons for Corporate Governance". It is interersting and rich of information in Corporate Governance.
See Yener and McGowan on this site for a discussion of the OECD and World Bank measures of corporate governance and the impact in eleven developing countries.
Dear Carl. Thank you for the reference of Yener and McGowan for the discussion of the OECD World Bank measures of corporate governance.
Mahfuz did you mean to say relationships "between shareholders" or between the shareholders and the company? In a listed company there are retail investors (mums and dads) and institutional investors who are more and more a feature in corporations today. It is unlikely that there will be any sort of shareholders' agreement as there are in smaller companies, because the shareholders will not know each other in a listed entity. So I am thinking you are referring to the relationship between the company and its shareholders. Independent directors are key to governance for retail or minority shareholders because it is their role to represent such shareholders. Institutional shareholders generally have enough "clout" to represent their own interests to senior management and the board. Thus Reza makes a good point about the protection of minority shareholders' interests, but directors must be mindful of all shareholders, particularly at AGMs, and when major decisions are being made. How they do that is an individual decision for each board.
Dear Andrea, I mean among stakeholders. Stakeholders include shareholders, employees, suppliers, etc.
Then the answer is most definitely yes, but if so, stakeholders first have to be identified. Once identified they must be considered in terms of the relationship, so some are easy - employees, customers, suppliers, creditors - and some are less easy to identify - the local community, government, competitors and so on. That means the Board must treat stakeholders seriously - Freeman has a theory of stakeholders which he refers to as stakeholder management which is what directors are responsible for. There is also another concept called social license to operate which you could look at as well, which is different from the social contract referred to by ethicists.
Dear Mahfuz,
If your question is focusing on principle-principle conflicts, then, indeed, corporate governance arrangements are needed to offset the different levels of power among the shareholders. These differences of power are clearly rooted in the different percentages of ownership and thus are legitimate. Unfortunately, empirical evidence points towards the misuse of power to the detriment of minority groups. Thus, corporate governance mechanisms are needed where major shareholders may be corrupted by their very shareholdings.
Paul
Corporate governance is good for better coordination, understanding and relationships among shareholders. However, there should be an efficient regulatory body to oversee the affairs of financial ventures.
In Anglo-Commonwealth legal systems there are financial markets regulators, but they are responsible for capital and financial markets participants only. However in the UK, Australia and NZ, corporate culture has been (in the UK) and is (in NZ) one of the strategic priorities for the regulators - how boards set the culture of their businesses, how they implement, monitor and reinforce the culture comes down in part to the understanding directors have of their business operations. That includes the role stakeholders have to play.