Corporate Governance

Topics: Corporate governance, Political corruption, Management Pages: 8 (2479 words) Published: August 28, 2013


Governance in the Oxford dictionary is defined as “control or influence”, while corporate is defined as “shared by all members of the group”. Therefore corporate governance refers to the structures and processes for the direction and control of members of a group. It is concerned with holding the balance between economic and social goals and between individual and communal goals. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and society. Corporate Governance refers to the way a corporation is governed. It is the technique by which companies are directed and managed. It means carrying the business as per the stakeholders’ desires. It is actually conducted by the board of Directors and the concerned committees for the company’s stakeholder’s benefit. It is all about balancing individual and societal goals, as well as, economic and social goals. Corporate Governance is the interaction between various participants (shareholders, board of directors, and company’s management) in shaping corporation’s performance. The relationship between the owners and the managers in an organization must be healthy and there should be no conflict between the two. The owners must see that individual’s actual performance is according to the standard performance. These dimensions of corporate governance should not be overlooked. Good corporate governance deals with the manner the providers of finance guarantee themselves of getting a fair return on their investment. It clearly distinguishes between the owners and the managers, the managers being the deciding authority. Good corporate governance deals with determining ways to take effective strategic decisions, it also ensures transparency which ensures strong and balanced economic development, and ensures that the interests of the stakeholders are safeguarded.


Good corporate governance maintains investor confidence. This allows a company to raise capital efficiently and effectively. Investors should be confident about the company or organization that they are investing in by being assured of a return on their investment and so good corporate governance through good corporate strategies allows the investors to have an idea about the way their investments will be used. The capital from the investors can allow an organization to be effective and efficient in the way it carries out its business. Good corporate governance also provides proper persuasion to the owners as well as managers to achieve objectives that are in the interests of the shareholders and the organization. Shareholders want a return on their investments while managers want the company to grow by reinvesting the profits made, and so good corporate governance allows for the reconciliation of these two objectives and therefore ensures effective and efficient distribution of the profits made. Good corporate governance has been traditionally associated with the principal-agent relationship. Investors or financiers (principal) hire managers (agents) to run the firm on their behalf, investors need managers’ specialized human capital to generate a return on their investment and managers need the investors’ funds since they may not have enough capital of their own to invest. The objective of the firm is to maximize shareholder wealth through allocative, productive and dynamic efficiency, (to maximize profits in other words), while managers’ objectives are for instance to maximize their salaries, growth in market share or attachment to particular...

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