Corporate Governance

Good corporate governance is key to the integrity of corporations, financial institutions and markets, and central to the health of our economies and their stability. Corporate governance has become talk of the day in the corporate world, especially when there is financial crisis originated in the U.S.A. and some other countries due to poor governance of financial institutions. Therefore, now days corporate governance which is a mechanism to mitigate the clash of interests among the stakeholders of a corporation, has achieved further focus from regulatory groups. Corporate governance is concerned with the resolution of collective action problems among dispersed investors and the reconciliation of conflicts of interest between various corporate claimholders.

Definition
The modern definition calls it structure of rules and exercise by which a board of directors ensures purity and transparency in the firm's combination with its all stakeholders. There are two contracts in the structure, such as- explicit and implicit. Principles of Corporate Governance: Key elements of good corporate governance principles include honesty, trust and integrity, openness, performance orientation, responsibility and accountability, mutual respect, and commitment to the organization. Of importance is how directors and management develop a model of governance that aligns the values of the corporate participants and then evaluate this model periodically for its effectiveness. In particular, senior executives should conduct themselves honestly and ethically, especially concerning actual or apparent conflicts of interest, and disclosure in financial reports. Commonly accepted principles of corporate governance include: ‡ Rights and equitable treatment of shareholders: Organizations should respect the rights of shareholders and help shareholders to exercise those rights. They can help shareholders exercise their rights by effectively communicating information that is understandable and accessible and encouraging shareholders to participate in general meetings. ‡ Interests of other stakeholders: Organizations should recognize that they have legal and other obligations to all legitimate stakeholders. ‡ Role and responsibilities of the board: The board needs a range of skills and understanding to be able to deal with various business issues and have the ability to review and challenge management performance. It needs to be of sufficient size and

responsibility and accountability. ‡ Role and responsibilities of the board: The board needs a range of skills and understanding to be able to deal with various business issues and have the ability to review and challenge management performance. as a way of ensuring that corporate value would not be destroyed by the now traditionally cozy relationships between the CEO and the board of directors (e. There are issues about the appropriate mix of executive and non-executive directors. They can help shareholders exercise their rights by effectively communicating information that is understandable and accessible and encouraging shareholders to participate in general meetings. mutual respect. Of importance is how directors and management develop a model of governance that aligns the values of the corporate participants and then evaluate this model periodically for its effectiveness.g. trust and integrity. South Korea. Commonly accepted principles of corporate governance include: ‡ Rights and equitable treatment of shareholders: Organizations should respect the rights of shareholders and help shareholders to exercise those rights. and commitment to the organization. especially concerning actual or apparent conflicts of interest. The Impact of Corporate Governance: The positive effect of corporate governance on different stakeholders ultimately is a strengthened economy. Malaysia and The Philippines severely affected by the exit of foreign capital after property assets collapsed.. by the unrestrained issuance of stock options. ‡ Interests of other stakeholders: Organizations should recognize that they have legal and other obligations to all legitimate stakeholders. performance orientation. and hence good corporate governance is a tool for socioeconomic development. In 1997. It needs to be of sufficient size and have an appropriate level of commitment to fulfill its responsibilities and duties. and disclosure in financial reports. openness. not infrequently back dated). Indonesia. Principles of Corporate Governance: Key elements of good corporate governance principles include honesty. ‡ . the East Asian Financial Crisis saw the economies of Thailand. senior executives should conduct themselves honestly and ethically. The lack of corporate governance mechanisms in these countries highlighted the weaknesses of the institutions in their economies. In particular.institutional shareholder activism (something only very rarely seen before).

written objectives. Issues involving corporate governance principles include: ‡ Internal controls and internal auditors ‡ The independence of the entity's external auditors and the quality of their audits ‡ Oversight and management of risk ‡ Oversight of the preparation of the entity's financial statements ‡ Review of the compensation arrangements for the chief executive officer and other senior executives ‡ The resources made available to directors in carrying out their duties ‡ The way in which individuals are nominated for positions on the board ‡ Dividend policy. a former member of the General Motors board of directors. Nevertheless "corporate governance. many organizations establish Compliance and Ethics Programs to minimize the risk that the firm steps outside of ethical and legal boundaries. the degree and extent to which the board of Director (BOD) exercise theirtrustee responsibilities (largely anethical commitment). wrote: ." despite some feeble attempts from various quarters. quality and frequency of financial and managerial disclosure.Integrity and ethical behavior: Ethical and responsible decision making is not only important for public relations.these should be constantly evolving due to interplay of many factors and the roles played by the more progressive/responsible elements within the corporate sector. Smale. but it is also a necessary element in risk management and avoiding lawsuits. Because of this. and the commitment to run a transparent organization. John G. efficient and transparent administration and strive to meet certain well defined. for it must include a fair. remains an ambiguous and often misunderstood phrase. It is something much broader. ‡ Disclosure and transparency: Organizations should clarify and make publicly known the roles and responsibilities of board and management to provide shareholders with a level of accountability. Disclosure of material matters concerning the organization should be timely and balanced to ensure that all investors have access to clear. Corporate governance must go well beyond law. For quite some time it was confined only to corporate management. That is not so. factual information. The quantity.

That responsibility cannot be relegated to management. Alternative methods of limiting abuse have yet to be proven. but this may increase managerial discretion and scope for abuse."The Board is responsible for the successful perpetuation of the corporation. Such concentration of ownership hinders effective implementation of corporate governance. Family orientation is One of the reasons for slow progress in adopting corporate governance. On going Corporate Governance: A fundamental dilemma of corporate governance emerges from this overview: large shareholder intervention needs to be regulated to guarantee better small investor protection. Rights of the shareholders are of paramount .

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