According to Phillips (2007) “Corporate governance is an encompassing policy, processes and people, which serves the needs of shareholders and other stake holders by directing and controlling management activities with good business savvy, objectivity and integrity”. The author stated that sound corporate governance is dependent on external market place commitment and legislation plus a healthy board culture that safeguards policies and processes. Magdi and Nadereh (2002) stress that corporate governance is about ensuring that the business is run well and investors receive a fair return. The Organization for Economic Cooperation and Development (OECD) report provides a more encompassing definition of corporate governance. It defines corporate governance as the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation such as, the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the company’s objectives are set and the means of attaining those objectives and monitoring performance (Kajola, 2008). Equally, Kwakwa and Nzekwu(2003) refer corporate governance to the manner in which the power of a corporation is exercised in accounting for corporation’s total portfolio of assets and resources with the objective of maintaining and increasing shareholder value and the satisfaction of other stake holders while attaining the corporate mission. Economic Commission for Africa (ECA) report(2005) refers corporate governance as the mechanisms through which private or state-owned corporations and their management are governed, and that it provides a structure through which the objectives and the performance of a corporation are determined and monitored. According to the report, good corporate governance contributes to: (a) The efficient mobilization and allocation of capital;
(b) The efficient monitoring of corporate assets; and
(C) Improved national economic performance.
It further stated that good economic and corporate governance are fundamental preconditions for the renewal of Africa. ECA (2005) stated that good economic outcomes are derived from good economic and political governance, and the importance of corporate governance lies in its contribution both to business prosperity and to accountability. Corporate governance ensures that constituencies and stakeholders in a company are taken into account. Otobo (2005) referred to governance in terms of concentric circles in which the main components were political governance, economic governance and corporate governance. The author argued that political governance sets the orientation of the economy; economic governance provides the laws under which corporations are established; and corporate governance is the way in which firms are managed. He emphasized that corporate governance is important because of the separation of management from ownership in the firm, and that corporate governance is at the intersection of law, public policy, and business practices. Thus, the relationships of the board and management, according to Al- Faki (2006), should be characterized by transparency to shareholders, and fairness to other stakeholders. Corporate performance is an important concept that relates to the way and manner in which financial resources available to an organization are judiciously used to achieve the overall corporate objective of an organization, it keeps the organization in business and creates a greater prospect for future opportunities PROBLEM STATEMENT
During the 1990s and early 2000s, the banking sectors of many developing countries have experienced financial sector liberalization. It seems that the policy makers in these countries believe that financial...
Please join StudyMode to read the full document