Transparency Is Key Aspect of Corporate Governance

Topics: Corporate governance, Governance, Management Pages: 4 (1320 words) Published: December 31, 2012
The boards of directors are responsible for the governance of their companies so there has to be transparency in company reporting. Transparency is key aspect of corporate governance because of implementing corporate governance this will allow stakeholders and shareholders to review and evaluate performance of management and the company this ensures that the board of directors and the executive directors of corporations act in the best interest of shareholders and the corporations. It is implemented like a form of company law it is put in place so shareholders are protected and also so that the company is run up to standards is making profits and it is a way shareholders and potential investors know they can trust the management. This is also how to overcome conflict of interest between them and how they make sure everyone is doing what they are supposed to because they have to show in their company reports what they have been doing. Agency theory explains the conflict of interests between the shareholders and managers (Jensen & Meckling, 1976).Agency theory can be traced back to Adam Smith (1937) who identified an agency problem (managerial carelessness and wealth). The separation of ownership and control has also been one of the most discussed issues in corporate governance as it is restricted to the relationship between shareholders and the company in addition it is seen as the traditional view of corporate governance, and this is the main aspect of agency theory, as summarised in the Cadbury report (1992). The main issue of aligning mangers interests with those of their shareholders. The shareholders are the owners of the company, and the firm has a binding fiduciary duty to put their needs first, to increase value for them and maximise shareholder wealth the aim of the firm is to maximise shareholder return. The managers and shareholders have to align their interest so that the manager s can make the best decision and in the best interests of the...
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