What is Corporate Governance and why is it necessary?
Up to now no specific world-wide common understanding or single definition for “corporate governance” has been established. More generally, corporate governance can thus be understood as the totality of all national and international regulations (e.g. Sarbanes-Oxley Act), rules, values and principles (e.g. UK’s “Code of best practices”) that apply to businesses and determine how they are steered and monitored. Corporate governance can be complex and includes mandatory and voluntary measures such as the adherence to laws and regulations, the follow accepted standards and recommendations, as well as the develop and compliance with a company’s own corporate guidelines. Another aspect of corporate governance is the design and implementation of management and control structures. Ensuring good corporate governance contributes to the long term success: Avoid:
Corporate Fraud (eg. Longtop)
Accounting Scandal (eg. Enron)
Excessive compensation (eg. CEO Bonus)
Premium on market price
Investors’ trust and shareholder value
While building a corporate governance system the assumption is reigning that the separation of owner and management creates an "agency problem" that needs to be solved. Corporate Governance in the U.S.
The US model of cCorporate gGovernance, also referred to as the Anglo-Saxon model is shareholder-centric. Thus the model is built to ensure that the interest of the owners in the goal of the company’s operations although the owner might not steer the business himself. The Board of Directors as the committee that supervises the executive operations is the most important controlling mechanism. It is comprised of company executives, founder or founder family, representatives of big investors (e.g. Hedge Fund) and independent directors. Labor union and mutual funds are typically not on the board of directors in the U.S. model. An independent director...
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