Instruction: Answer the following questions. Refer to the given rubric for scoring.

(2 items
x 20 points)

1. Why has corporate governance become so important recently? What is the role of corporate
governance in running a company?

 A powerful and reliable corporate governance contributes to the development of an

integrity-driven company culture, which leads to improved performance and a more
sustainable organization overall. Basically, it exists to improve the responsibility of all
employees and teams within the organization, trying to prevent problems from occurring
in the first place.

Corporate governance is the process that directs and controls businesses. The board's
tasks include establishing the strategic goals of the company, providing leadership to put
them into action, monitoring business operations, and reporting to investors on their
performance.

2. Describe the separation of ownership from control in a listed corporation. Explain how that
separation comes about and why it leads to the principal-agent problem.
 The separation of ownership and control is known as agency theory, and its principles are
based in economics and finance. Because the objectives of managers and shareholders
differ, economic theory shows that managers would act in their own self-interest rather
than maximizing shareholder returns. For example, managers' interests in raising their
pay are at odds with shareholders' interests in maximizing of share value. As a result, the
principal-agent dilemma arises. The expenses incurred as a result of the principal-agent
relationship are called to as agency costs. Managing costs audits, bonding costs adjusting
agreements, and residual loss managers deceiving shareholders are all part of it. To
preserve shareholders' interests, corporate governance procedures just like takeover and
board of directors are critical in keeping managers' self-interests in check. The primary
role of agency theory is to monitor the performance of a company's top executives.
Ownership refers to the shareholders who own the business and are the primary
proprietors. The firm is controlled by the management, who act as agents. When a firm is
listed, it indicates that its stock is traded on a stock exchange. As a result, the company's
shares are held by a greater number of stockholders. Control, on the other hand, remains
in the hands of the company's managers. Principal-agent issues occur as a result of
conflicting knowledge, agency costs, and a difference in interest.