Corporate Governance: Relevance and significance in the current Corporate environment.
This article will discuss whether the concept of Corporate Governance appears to make a difference in the way in which companies are managed at board level. It will also briefly mention whether the recent economic turmoil in major and minor companies alike, would have been due to a lack of proper corporate governance.
It will also explore in brief about the principles and ethical standards a business should have with regard copyright/patent issues, in the context of business of computer software.
Corporate governance focuses on activities concerned with listed companies and circumstances in which there is a clear separation of ownership and control (Coyle 2005a, 2005b; Mallin 2004, 2006; Tricker 1995). It is the system by which companies are directed and controlled, in the interest of shareholders and other stakeholders, to sustain and enhance value.
Aoki (2001) opines corporate governance to be a combination of rights and responsibilities of the parties who have a stake in the firm. Effective corporate governance implies mechanisms to ensure that executives respect the rights and interests of company stakeholders, as well as making those stakeholders accountable for acting responsibly with regard to the protection, generation, and distribution of wealth invested in the firm (Lorsch and MacIver, 1989; Aguilera, Filatotchev, Gospel and Jackson, 2008).
Starovic (2003) defines Corporate governance a system by which companies are directed and controlled which mainly has it’s focus on the hygiene and housekeeping aspects of running a business.
The Organization for Economic Co-operation and Development (OECD) extends the definition by stating that corporate governance is a set of relationships between organizations management, its board, its shareholders and other stakeholders that provides a structure through which the objectives of the company are set and the means of attaining those objectives and monitoring performance are determined. It is being further explored that an organization can be viewed as consisting of corporate governance processes on the one hand (a so called framework of accountability) and value-creating activities such as strategic decision-making on the other. Both elements are necessary, since focusing on performance without having adequate checks and balances is like building on sand. But recently we may have overlooked the need for firms to ensure that corporate governance does not become an end in itself – i.e., a set of rules that actually constrains the value-creating activities of the business. Therefore, it is a matter of finding the right balance between controls in the business that helps it to grow in a natural manner, simultaneously not stifling it’s growth by having too tight controls in place.
◦Effectiveness of Corporate Governance
Lin (1996) opines that in recent years, the boards of directors of large, publicly held companies have been in the spotlight of the corporate governance debate. In response to highly publicized allegations of unchecked managerial abuses, such as defensive actions taken in the takeover battles of the 1980s and payments of "excessive" executive compensation unrelated to firm performance, some reformers have identified independent outside directors as a possible solution. The legal system already relies on outside directors to act as a check against managerial indiscretion in situations where the potential conflicts of interest between management and shareholders are great. But some reformers - including, at one time, the influential American Law Institute (ALI) - have recommended that the law go even further by requiring boards of all large, publicly held corporations to contain a majority of independent outside directors. Although "outside"...