Corporate Governance
There have been controversies on the subject of the governance and accountability of big corporations, but it is only recently that these issues have gained prominence. The compensation for the top management is one of the major issues of corporate governance today. The primary reason for offering stocks to executives was for raising the share prices and thereby increasing its value for both investors as well as shareholders. Though this proved to be a major success, there were a few executives who would not disclose their stock options or would not make full use of the stock options offered to them. This caused inefficiency in the financial market. Stakeholders have the freedom to check their shares and to question the management if there were any discrepancies. Despite these constant checks with financial analysts, the board of directors, the panel of regulators, auditors and managers, there has been instances of failures.
Stock market values, because of the complexity of their operation, became a perfect choice for those who wanted to hide the actual amount of money being paid to executives. Many examples of such mismanagement on the part of the compensation committee are evident in the present day when huge amounts of money are badly mismanaged and even those executives who did not deserve it were paid large amounts of money in salaries as compensation. Another method was to expense stock options so that all costs would be more transparent, and the result would be that excesses could be controlled to a large extent, and the pay packages would be adequate. Today, there is a lot of change happening in the corporate industry. These changes may be the creation of new technology as a response to changing consumer needs, and new competitions, all of which involves huge amounts of money and human resources. The intense pressure laid on short-term market capital performance is another issue that is threatening the corporations today.
Introduction:
Corporate Governance is the innate relationship that all shareholders, employees, the management, and the board of directors share between one another. Certain statutes that serve as a reference to the private and public institutions of a country, either formally or informally, govern this relationship. Such statutes, some of which are corporate and security laws, and some of which are accounting practices, maintain the balance between the management and the shareholders. There have been controversies on the subject of the governance and accountability of big corporations, but it is only recently that these issues have come to light. (Williamson, 1979, p.78)
Corporate governance affects the government in that it is an inherent function of every government to develop more efficient corporations by improving functionality as well as productivity by offering incentives to improve on these issues. Such situations have now changed the international nature of corporate governance. Now the government is obliged to provide a sort of safety net for the investors and for the society by keeping a close watch on the behavior of the corporations. The trend, in the past, of focusing more attention on the external factors that govern corporations like, for example, environment and labor problems, has been replaced by a focus on insider issues like trade unions. In broad terms, corporate governance should comprise of overseeing the company's general performance, and focusing attention on the board of directors who run the show. (Fort, 2001, p. 51)
The board should be capable of contributing to the company's success by maintaining relations with the other members; with the Chief Executive, who has to be appointed after careful consideration of various factors and whose performance has to be closely monitored, and between the other members of the board, and the way in which they conduct themselves, both mentally as well as ethically. There also has to be a flow of information between the various members of the board and the management. The information may be in the form of corporate strategies, and corporate communications. Business must be conducted in a transparent manner, and the responsibilities must be fairly divided between the board and the management. (Preston, 1995, p.18)
One important factor in corporate governance is the fact that there is a vital difference between the governance of public and that of private institutions. Both these institutions operate under different circumstances: while private institutions must be capable of producing results, being faced with stiff competition, the public sector has a major responsibility towards its numerous shareholders who have to be kept in mind at all...
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