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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