Corporate Governance

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Week 1 Essay Questions (80 Points)

1. Why is corporate governance important?

a) good corporate governance produces direct economic benefit to the organization

b) To avoid scandal

c) To imbibe trust in investors

d) The perception of good corporate governance is an important ingredient of the image of an organization, whether public, private, or nonprofit. e) A perception of unethical conduct by an organization can be very costly in legal cases

Reference: http://accounting.smartpros.com/x55104.xml

2. What is corporate governance?

A: Corporate governance refers to the set of systems, principles and processes by which a company is governed. They provide the guidelines as to how the company can be directed or controlled such that it can fulfil its goals and objectives in a manner that adds to the value of the company and is also beneficial for all stakeholders in the long term. Stakeholders in this case would include everyone ranging from the board of directors, management, shareholders to customers, employees and society. The management of the company hence assumes the role of a trustee for all the others.

Reference: http://articles.economictimes.indiatimes.com/2009-01-18/news/28462497_1_corporate-governance-satyam-books-fraud-by-satyam-founder

3. Is corporate governance costly?
A: Good corporate governance can be performed in a cost-efficient manner by focusing efforts on the significant risks facing the organization rather than attempting to cover any possible theoretical risk, and by installing the best cost-efficient practices within the organization. Resources must be concentrated in areas that have the greatest potential benefit, such as improving the corporate culture and establishing an effective internal audit function. Creating an ethical, law-abiding culture provides the greatest benefit for the organization compared to the relatively minimal cost of establishing such...
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