Corporate Governance And Its Development
There is no doubt that interest in corporate governance has substantially increased in recent years. Not only have separate states adopted their own corporate codes but also changes in corporate governance are directed at a global level. For developing economies corporate governance helps to achieve stable economic growth by means of effective management of corporations and to some extent governments Bushman and Smith 2001. Countries which already possess advanced corporate governance standards strive to strengthen adherence to them. It goes without saying that the catalyst of the process was the corporate and financial collapse of Enron. The crash of this company illustrated that even a company with good financial results might go bankrupt if it lacked solid corporate governance mechanisms guaranteeing trustworthy work of nonexecutive directors auditors and the board of directors. Following the scandal the regulators all over the world developed a number of policies to prevent further failures Papers4you.com 2006. Among the most influential documents are the SarbanesOxley Act of 2002 and the Higgs Report of 2003.
So what is corporate governance? There exist numerous definitions of corporate governance though most of them can be divided into the so called “narrow” and “broad” views Shankman 1999. The former emphasizes the role of corporate governance in improvement of the relationship between an enterprise and its shareholders. In other words the main stress here is on resolving the agency problem. On the other hand the latter and more modern approach states that corporate governance facilitates relationships not only between a company and its shareholders but also between different stakeholders in the company including employees customers suppliers bondholders and the government. Therefore corporate governance becomes important for the society as a whole Papers4you.com 2006. There is growing evidence that recent changes in corporate governance make its practical realization conforming to the second view.
It is interesting to look at the most pronounced tendencies in corporate governance development. First it is increasing institutional investor activism. Big asset management funds pension funds and other institutional investors now not only passively wait for return on their invested funds but discharge accountability for instance when it comes to directors’ remuneration. Second there is some evidence of harmonization in corporate governance standards. This process is led by globalization of international trade and financial activities. As a result many countries adopt the OECD 1999 principles of corporate governance which predominantly represent an AngloAmerican style of governance. However due to significant political legal religious and other differences between various countries it is difficult to expect a high degree of convergence. Third the scope of corporate governance goals has also increase. Nowadays managers of corporations make decisions taking into account corporate social responsibility. In other words social and environmental issues now increasingly determine how well the company performs Alexander and Buchholz 1978. To sum up corporate governance in the 21st century is the system of checks and balances which ensures that business entities act in a socially responsible way in all their endeavors while maximizing shareholders’ value.
References
Alexander G. J. and R. A. Buchholz 1978. “Corporate social responsibility and stock market performance.” Academy of Management Journal 213: 479486.
Bushman R. M. and A. J. Smith 2001. “Financial accounting information and corporate governance.” Journal of Accounting and Economics 32: 237333.
Papers For You 2006 “C/F/119. Globalization and Corporate Governance” Available from http://www.coursework4you.co.uk/sprtfina23.htm 19/06/2006
Papers For You 2006 “P/F/397. Corporate governance and Sarbanes Oxley Act law” Available from Papers4you.com 19/06/2006
Shankman N. A. 1999. “Reframing the debate between agency and stakeholder theories of the firm.” Journal of Business Ethics 19: 319334.
About the writer: Copyright 2006 Verena Veneeva. Professional Writer working for http://www.coursework4you.co.uk
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