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Corporate Governance

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									Corporate Governance
The conditions and emerging trends of the global business environment affect the overall
structure of every organization. As a result, there is a need to consistently evaluate, upgrade, and
sustain organizational frameworks in order to complement with the changes in the global market.
Meanwhile, significant changes in the perception, management, and impacts of corporate
governance have been developed in the previous years. Corporate governance is commonly
characterized as a system comprised with a set of established policies that is used to direct,
manage, operate, and control companiery, 1996). At present, a significant body of literature
provided by business authors and policy-makers recognize corporate governance and its effects
on businesses in a purposeful standpoint which requires suitable interventions in designing of
alternative organizational coping measures. Corporate governance has become one of the main
components in the operations of corporate organizations. With the proliferation of worldwide
companies on the notion of effective corporate governance, it is then important to illuminate on
the impacts of effective corporate governance systems and processes on company conduct and
performance.

       This paper discusses the popular corporate governance structures which are employed by
companies in the developed countries. It also explains how these are expected to affect long-term
financial performance, shareholder returns, and operational performance of firms. The belief if
“good” corporate governance is good for shareholders is also probed.

The Concept of Corporate Governance

       From the basic definition of corporate governance presented in the introduction, there is
still substantial question as to what corporate governance actually entails ( 2004). Referring to the
definition of Stapledon and Cadbury, it appears that the commission of corporate governance is
given to the top level management employees of an organization. (1998) similarly based his
definition on the former authors but made it even broader by stating that corporate governance
involves to anything that affects the previous post bargaining power over the generated value for
the firm. For (1997), they considered corporate governance as an institutional arrangement
wherein the view of corporate management is a way of protecting the interests of a company’s
shareholders. Corporate governance is centered on the careful administration of the processes
involved particularly on the relationships among all the stakeholders (2000). Normally, the
structure is composed of a board of directors, which is similarly made up of executive and non-
executive members of the firm ( 2002). In general, all definitions of corporate governance is
particularly concerned with the implementation and protection of the company’s objectives and
interests.

        The growing number of literatures tackling the subject of corporate governance among
specific business and industries is a product of the constant need for businesses to develop and
achieve a satisfactory level of performance in the particular market in which they choose to
operate. According to (2004), there is a need for a rational corporate governance system through
which management can be induced to ensure the maximization of shareholders’ wealth at the
same time protecting the interests of all parties involved, including the managers, large and small
shareholders, and creditors. The need to have a solid management body armed with the most
effective governing skills that adopts in the emerging business trend is one of the most
compelling reasons in which corporate governance is widely accepted. With the growing
importance of honest and ethical corporate structure, more and more business are attracted to
the idea of systematic and humanistic system of administration. Since corporate governance
covers the issues of interest especially the resolution of conflicting ones, corporate governance is
related to the overall performance of a company. With the resolution or impediment of internal
conflicts, smoother decision-making and decision implementation can be secure. This means that
interests of the stakeholders are the same, they will be able to work as one body in order to
achieve their objectives and thus uphold their respective interests within the organization.

Models of Corporate Governance

        In developed economies, there are two basic models of corporate governance (2004).
The first one is the Anglo-Saxon model, which is common in countries like United States, the
United Kingdom and other developed English-speaking countries such as Canada and Australia.
The other one is German-Japanese model, which is employed in many Continental European
countries and Japan.

        The Anglo-Saxon (American) model – Also called the ‘outsider’ system, the Anglo-
Saxon model is mainly described by dispersed shareholding, shareholder autonomy, and the
grouping of shareholders’ as well as managers’ interests. The significance of the development of
specified activities like monitoring, information disclosure, and accountability mechanisms such
as a competitive market for corporate control (i.e. mergers, acquisitions, and takeovers) is among
the core features of the model. The model also has an active market for corporate control where
shareholders exercise control over management discretion through exit. Generally, the insider
model gives precedence to the shareholders’ interests including all other stakeholders such as
employees, clients, suppliers, and the community at large.

        The German-Japanese/Non-Anglo-Saxon (American) model – This model is also
referred as ‘insider’ system wherein cross-shareholdings, cross-representation of directors, large
investor participation in corporate decision-making, and the concentration of share ownership are
common. It gives an idea on inter-firm cooperation and relationship-specific investments among
companies and their stakeholders. Virtually, there are no markets for corporate control due to the
small proportion of shares circulating on the market and it is impossible to acquire sufficient
shares to oust existing management teams. The stakeholder-oriented commentaries give
particular importance to safeguard the labor interests. There is also long-term relationship
maintained between larger shareholders and the corporations.

        These models, when implemented in modern economies, work reasonably well. In
general, the models of corporate governance apparently functions in safeguarding the interests of
all stakeholders as well as the principal players of the corporation particularly in both internal and
external mechanisms and controls. In order for these to be effective, several elements should be
present in a setting of the company. (2002) indicated that a strong public policy regarding
governance should be established in a specific setting. This means that laws and legislations with
respect to reporting, auditing and other financial activities should be specified in the legal system.
Another element identified is the existence of a sturdy and well-built regime for practicing internal
governance among the companies themselves. This works with the top level management
personnel for being knowledgeable and well-trained in such a way that their actions are still in
accordance of the established legislation of the land. Detomasi further indicated the need of a
network of independent auditors that would serve as the needed link and check of corporate
governance in general. This means that an independent body is required in order to monitor
whether the actions of the top level management of companies do complement what the
legislators have created, particularly the regime governing corporate governance as a whole.

        The concept of corporate governance enhances stakeholders’ confidence most
especially among foreign investors, thus promoting competitive market and improving economic
conditions play an important role. It primarily deals with the roles and responsibilities shouldered
by the Board in efficient business management and accountability. Having been said that
corporate governance is the process on how corporations are governed and controlled, it looks at
the institutional and policy framework for corporations where the integrity of corporations,
financial institutions and markets is particularly central to the health of the economies and
their stability ( 2005). Further, corporate governance is also dependent upon institutional,
legal and regulatory environments (2000). This being the case, factors such as the ethics,
societal and environmental awareness can affect the long-term success of a company
(2007). The concept of corporate governance summarizes the need to maintain good
business operations while considering the significance of improving the relations between the
company’s board and shareholders (i.e. executive and non-executive), establishing long-term
business transactions with investors, and ensuring that the interests of all stakeho lders are
protected.

        (1998) reports that corporate governance systems are being implemented within
diverse stakeholder groups for the purposes of determining the most valuable ways to
manage essential business resources through the utilization of methodic al methods as result
of empirical studied taken among various fields of application. Thus, ‘good’ corporate
governance is considered good for shareholders because it serves mainly on the most
effectual control and management of organizational operations. I t can develop corporate
performance by minimizing the total cost of aligning managers’ and shareholders’ incentives,
and of unavoidable self-interested managerial behaviog, 1976). Good corporate governance
is good for shareholders because it provides proper incentives for the Board and
management to pursue objectives that are in the interests of the company and its
shareholders. It also facilitates effective monitoring thereby encouraging firms to use their
resources more efficiently. Aside from protecting stakeholders’ rights, it also focuses on the
guaranteed achievement of organizational objectives leading to outstanding corporate
performance and profitability. It is recommended on this case that the continuing trends in
global corporate governance must be anticipated and properly addressed. It must be
remembered that the emerging culture of effective corporate governance among modern
companies is directed to a competitive company conduct and performance. Thus, the
company’s position on corporate governance is among their competitive edge against their
rivals, general business strategy and performance.

								
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