Corporate governance agency theory essay

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The principles and recommendations focus on, corporate governance essay questions others, laying a strong foundation for the board and its committees to carry out their roles effectively, promote timely and balanced disclosure, safeguard the integrity of financial reporting, emphasise the importance of risk management and internal controls and encourage shareholder participation in general meetings.

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The Importance of Corporate Governance Essay

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Small essay on visit to a zoo, sustainable development argumentative essay, essay of my life examples. This is often limited to the question of improving financial performance. 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.

Others use the expression as if it were synonymous with shareholders democracy. Corporate governance is a topic recently conceived, as yet ill-defined, and consequently blurred at the edges……. Integrated framework frame work whereby people formally organise themselves for a defined purpose in a corporation, and they apply systemic processes consistently to achieve predicted performance for sustainable development.

A continuous process through which conflicting or diverse interests may be accommodated and cooperative action may taken. The governance frame work is there to encourage the efficient use of resources. Corporate governance is management of structuring, operating and controlling a company with a view to achieve long term strategic goals to satisfy its stakeholders namely shareholders, creditors, employees, customers, suppliers and those connected.

Corporate governance prescribes a code of conduct in relation to all the stake holders. Hence sets a framework of effective accountability to its stake holders. Good corporate governance serves several important objectives. It enhances corporate performance by creating an environment that motivate managers to maximise returns on investment, enhance operational efficiency and ensure long-term productivity growth basis.

It also ensures that corporations conform with the interests of investors and society by creating fairness, transparency and accountability in business activities among employees, management and the board. Corporate Governance is a systemic process by which the companies are directed and controlled to enhance their wealth generating capacity. Since large corporations employ vast quantum of societal resources, governance process should ensure that these companies are managed in a manner that meets stake-holders aspiration and societal expectations.

Corporate Governance is based on the principles of integrity, fairness, equity transparency, accountability and commitment to values.

Good governance practices stem from the culture and mindset of the organisation. As stakeholders across the globe evince keen interest in the practices and performance of companies, Corporate Governance has emerged on the centre stage. Introduction of Corporate Governance in a company brings order and methods in decision making process and fixes who should own the responsibility. That is the goal and role classification emerge.

The company will focus on its mission, vision and not an personal likes and dislikes of few top officers. The benefits of corporate governance are difficult to quantity in short range. Accounting jugglery and showing profits give a company short term gains but they are not long term policies for financial credibility. The unethical policies or mismanagement by CEO corporate governance essay questions director of a company will be exposed by adhering to corporate governance principles.

Corporate governance will throw light on excessive remunerations given to directors or CEO. It improves, investor confidence and relations. The occurrence of frauds and mismanagement can be detected early for remedial actions. Yet in which elected and will be first americans have been watching protests against oppressive regimes corporate governance agency theory essay gives ambitious projects the term.

A we write your essay and guarantee of this website featured. Free problem solver with steps governance mechanisms and controls are designed to reduce the inefficiencies that arise from moral hazard and adverse selection. There are both internal monitoring systems and external monitoring systems.

Furthermore, the various board mechanisms provide for internal monitoring. External monitoring of managers' behavior occurs when an independent third party e. Stock analysts and debt holders may also conduct such external monitoring. An ideal monitoring and control system should regulate both motivation and ability, while providing incentive alignment toward corporate goals and objectives.

Care should be taken that incentives are not so strong that some individuals are tempted to cross lines of ethical behavior, for example by manipulating revenue and profit figures to drive the share price of the company up.

Internal corporate governance controls monitor activities and then take corrective actions to accomplish organisational goals.

Examples include:. In publicly traded U. While this practice is common in the U. External corporate governance controls the external stakeholders' exercise over the organization. The board of directors has primary responsibility for the corporation's internal and external financial reporting functions.

The chief executive officer and chief financial officer are crucial participants, and boards usually have a high degree of reliance on them for the integrity and supply of accounting information.

Corporate governance essay questions

They oversee the internal accounting systems, and are dependent on the corporation's accountants and internal auditors. Current accounting rules under International Accounting Standards and U. GAAP allow managers some choice in determining the methods of measurement and criteria for recognition of various financial reporting elements.

The potential exercise of this choice to improve apparent performance increases the information risk for users. Financial reporting fraud, including non-disclosure and deliberate falsification of values also contributes to users' information risk. To reduce this risk and to enhance the perceived integrity of financial reports, corporation financial reports must be audited by an independent external auditor who issues a report that accompanies the financial statements.

One area of concern is whether the auditing firm corporate governance agency theory essay as both the independent auditor and management consultant to the firm they are auditing. This may result in a conflict of interest which places the integrity of financial reports in doubt due to client pressure to appease management.

The power of the corporate client to initiate and terminate management consulting services and, more fundamentally, to select and dismiss accounting firms contradicts the concept of an independent auditor.

Changes enacted in the United States in the form of the Sarbanes-Oxley Act following numerous corporate scandals, culminating with the Enron scandal prohibit accounting firms from providing both auditing and management consulting services.

Corporate governance agency theory essay

Similar provisions are in place under clause 49 of Standard Listing Agreement in India. Increasing attention and regulation as under the Swiss referendum "against corporate rip-offs" of has been brought to executive pay levels since the financial crisis of Research on the relationship between firm performance and executive compensation does not identify consistent and significant relationships between executives' remuneration and firm performance.

Not all firms experience the same levels of agency conflict, and external and internal monitoring devices may be more effective for some than for others. Some argue that firm performance is positively associated with share option plans and that these plans direct managers' energies and extend their decision horizons toward the long-term, corporate governance essay questions than the short-term, performance of the company.

However, that point of view came under substantial criticism circa in the wake of various security scandals including mutual fund timing episodes and, in particular, the backdating of option grants as documented by University of Iowa academic Erik Lie [] and reported by James Blander and Charles Forelle of the Wall Street Journal.

Even before the negative influence on public opinion caused by the backdating scandal, use of options faced various criticisms. A particularly forceful and long running argument concerned the interaction of executive options with corporate stock repurchase programs. Numerous authorities including U.

Federal Reserve Board economist Weisbenner determined options may be employed in concert with stock buybacks in a manner contrary to shareholder interests. These authors argued that, in part, corporate stock buybacks for U. A combination of accounting changes and governance issues led options to become a less popular means of remuneration as progressed, and various alternative implementations of buybacks surfaced to challenge the dominance of "open market" cash buybacks as the preferred means of implementing a share repurchase plan.

Shareholders elect a board of directors, who in turn hire a chief executive officer CEO to lead management. The primary responsibility of the board relates to the selection and retention of the CEO. It also provides the structure through which the company objectives are set, as well as the means of attaining and monitoring the performance of those objectives. Corporate governance is used to monitor whether outcomes are in accordance with plans and corporate governance agency theory essay motivate the organization to be more fully corporate governance essay in order to maintain or alter organizational activity.

Corporate governance is the mechanism by which individuals are motivated to align their actual behaviors with the overall participants. Good corporate governance means well defined shareholders rights, a solid control environment, high levels of transparency and disclosure and an empowered board of directors-it makes companies both more attractive to investors and lenders and more profitable. It pays to promote good corporate governance.

Well governed companies often draw huge investment premiums, get access to cheaper debt, and outperform their peers.With RBV, the unit of analysis.

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. This framework ensures that accountability discharge to all their stakeholders by an organisation. Meanwhile, at all areas of the business activity, the organisation should act in a socially responsible way.

The study indicates that the corporation disclosure is influenced by the corporation's concentrated ownership structure. Therefore, building on the premise that the level of voluntary disclosure influences investor confidence in a corporation, the study concludes that the size and value of companies is significantly associated with the ownership structure and subsequent voluntary disclosure of information.

In conclusion, Vives confirms that the concentration of ownership improves the control of management. These external mechanisms ensure consistent monitoring of corporate performance, provoking public scrutiny therefore management work hard to avoid poor performance.

On the other hand, executive pay packages for management positively influence the corporation's growth as management seek a better return for the investors Gustavson However, in their conclusion, the NEPAD report recommends for improved enforcement and updating of laws and regulation, enhanced supervisory capacities for the supervisory institutions and proper assessment of corporation boards.

Cadbury identifies the positive influence of a sound and effective corporate system on a nation's economic drive and competitive advantage.

While several arguments have indicated that a strong governance system leads to improved corporation performance, enhanced supervisory and protection of stakeholders' interest; this section considers the impact of the Kenya's corporate system on the country's economic development. One may question why shareholder rights are so important while the corporation's purpose has been concluded as the maximisation of stakeholders' utility.

According to Paredes shareholder protection encourages investment, development of capital markets, and ultimately economic growth. In the recent years, there is substantial increase in trading activities at NSE. Strong investor protection is phd dissertation help outline with an effective corporate governance system and the presence of greater security of property rights as proposed in La Porta et al In Kenya, while appreciating other factors among them enhanced corporate system generates investor goodwill and confidence in the capital market thereby facilitating economic growth - to the extent that recent bond issues have been oversubscribed and foreign direct investment has significantly increased.

Stewardship Theory…………………………………………………………4 3. Stakeholder Theory…………………………………………………………. Transaction Cost Theory……………………………………………………. Introduce to Corporate Governance 2. Governance makes a Difference 3. Failures of Corporate Governance 4. As an example, all annual reports had information about the Board of Directors in terms of their skills and experience.

However, it was only in the case of BHP Billiton that the management had taken extra effort to present the information in a graphical and user-friendly manner. The annual report of BHP Billiton showed pie charts with age, skill and location distribution of its Board of Directors.

Corporate governance essay

This was much easier to grasp than the descriptions seen in the majority of the cases. Users of annual reports would find it much easier to look at these graphics for analysing the diversity and experience of the Board of Directors, and therefore it is recommended that companies should adopt similar presentation formats.

Currently, the management of a company is responsible for its internal control over financial reporting. This has both advantages and disadvantages. The advantage is that the internal control function can quickly get in touch with the management if any issue needs to be reported. This may allow the risk or fraud to continue for a longer duration. The disadvantage of this reporting structure is that the internal control may find it difficult to highlight an issue if the senior management corporate governance agency theory essay in financial frauds.

It is also expected that employees appointed in the internal control function may have been with the company for some time, and therefore may have developed a personal relationship with the senior management. This also makes it difficult to report any violation by the senior online dissertations. It is recommended that the annual report of a company should disclose all financial frauds over a certain amount or percentage of equity of the company.

This would increase the knowledge of investors and lenders regarding the state of corporate governance within the company. It is also recommended that each company should establish a guideline which should state that if a corporate fraud is more than a certain amount or percentage of its equity, then the internal control function would report to the audit committee with regards to investigation of that fraud.

This would increase the independence of the internal control function without overburdening the audit committee with small frauds. This step will increase the faith of investors in the financial reports of the company. It is also recommended that companies should make effort to ensure that users of annual reports find it easier to obtain information on risks and internal control measures.

Risk is an important topic in the majority of annual reports, but information on risk is not typically available in one place in annual reports. Companies mention that they have processes on determining the effectiveness of risks but the actual process is mentioned in other areas of the report such as 'Risk management and discussion'.

Malaysian Code on Corporate Governance Essay - Free Summaries Examples

Some firms, such as Siemens, provided clear links but others failed to point properly to look for material on risk management. The content on risk and internal control can be overwhelming for investors, especially individual investors who wish to know about the future prospects of a company but find it too time consuming to go through all content in an annual report.

Since risk has a material impact on the future earnings and cash flows, it is recommended that major risk elements and controls in place to mitigate them should be presented in a bulleted summary somewhere ideally in early chapters in an annual report.

This will help investors in gaining a better understanding of risks of corporate governance agency theory essay in a business. Annual reports of companies list a number of risk factors which may influence the performance and financial position of the business in the short and long-term. Listing of risks is useful for investors and lenders but again the effort seems to be on meeting the obligatory requirements under the national corporate governance codes of countries.

The effectiveness of risk disclosure can be improved by including a risk-ranking matrix in annual reports. This will allow investors to focus quickly on major risks and look for steps being taken to mitigate them. It will also help users of annual reports to see if the management of the firm is prioritising more on areas that need greater attention. The matrix may not be a complex one ' a simple three-tier ranks of high, medium and low ' would be sufficient to help users of annual reports.

Firms should design and put into practice strong whistle-blowing systems to ensure that employees with knowledge of frauds within the company can report them to the Board of Directors without the fear of being prosecuted.

In the case of Is technology good or bad essay, the board of the company fired its CEO for questioning suspicious transactions. If this was the treatment given to the CEO, employees at lower level could not have thought of reporting the fraud without being severely reprimanded. Protection of employees is important because most external whistle-blowers first blow the whistle internally Kaptein, Thus, developing a system that encourages internal whistle blowing could result in early detection of frauds.

In terms of accountability, there should be more emphasis placed on the accountability of independent and non-executive directors. The Board of Directors are agents of shareholders and it is their fiduciary duty to protect shareholders' wealth. Currently, accountability rests with the executive board.

It is recommended that the non-executive directors are also made more accountable because of the impacts of their actions. As an example, the annual report of Nike states that 'The Board has also determined that Mr.?? Graf is an 'audit committee financial expert' as defined in regulations adopted by the SEC Nike,p.

In the event of failure of the audit committee, the designated independent director should be approached first and his actions should be reviewed. This will increase accountability of independent directors and they will take their role more seriously.

There is a risk that some experienced people may not wish to take non-executive director roles because of the increased accountability. This has to be weighed in, but the loss of wealth of shareholders in a large company due to fraud is more important. Conclusion The purpose of this report was to analyse and compare corporate governance practices in countries and companies in three main areas: Board of Directors, audit committee, and internal control and risks.

Corporate governance is a useful tool to increase faith in capital markets, especially in the case of firms where owners are different from managers.

The corporate governance systems across the world have shown convergence, but there are some differences. That emphasizes directing function rather than monitoring function. The definitions of corporate governance essay governance always concentrate. Protection and Corporate Governance Introduction: This paper seeks to critically review the topic of corporate governance and its relation to the protection of investor rights and finances. The benefits of current corporate governance practices will be assessed as well as the disadvantages that exist in fully managing and mitigation the risks that investors face in the corporate financial environment.

Additionally, the importance of the practice and implementation of corporate governance will be examined. Giridhar K. Krishna M. Corporate governance basically includes adjusting There are aspects of the corporate governance regime that have an impact on the relationship between shareholders and the company.

It encompasses the mechanisms by which companies, and those in control, are held to account. Corporate governance influences how the objectives of the company are set and achieved, how risk is monitored and assessed, and how performance is optimized.

Hence corporate governance focuses on the following : 1.

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