CONTEMPORARY CORPORATE GOVERNANCE ISSUES: theories into practice

Running Head: Contemporary Corporate Governance Issues Insert Name Insert Course Title Insert Instructor`s Name Date In the contemporary world, the shareholders value in the company is highly appreciated as it is perceived to be of beneficial to the company as a whole. This is due to the fact that they possess indirect and direct influence to the operability of the company and the profit outlay and therefore the company focus on the dependency on the shareholders in order to realize their long run goals. Many companies ensure that shareholders existence is of key, if not ultimate, importance to the company (Anson, 2006). It culminates that their value is created when the investments returns of the company is less than the investment costs. Shareholders minimum return expectations is based on the investments they made which is equal to going return valued at low-risk investment such as U.S. treasury securities and inclusion of the risk premium associated with the company`s risk level. The company`s focus on the shareholders value should endeavor to stay abreast with shareholders interests. The managers reinstate their vision to the entrepreneurial strategy rather than focusing on its superiors. This will enhance them to divert from the constant dependency of their superiors and strive to meet the shareholder`s value and needs. This is instigated by Andrew Black et al. suggestion in In Search of Shareholder Value that managers` entrepreneurial perspective provide a wide and inherent way of meeting the shareholders value (Luo, 2007). Consequently, the managerial focus is on company`s key revenue-generating functions so as to meet the shareholders value and also in running the company efficiently. This in turn enables the company to be more of service or product leader and therefore the closer tie with the consumers. The managers of the company identify the primary and ultimate revenue-generating strategies and promote them. The company main focus is to distinguish the shareholders with long-term interest in the company`s operations and those with short-term interest. To meet this criteria the company endeavor to execute growth strategies that will have a benefit to both the two kinds of investors. This will not be achieved smoothly as the company will experience conflicts of interest on the two kinds of investors. Shareholders own a considerable power in the company`s decision making body. The Company well being needs to focus on the management of the shareholders in order to fulfill two conditions; first, meet their needs and provide them with information needed on the company`s plans and performances. Secondly, the company needs to maximize the shareholders profits in order to maintain existing and attract new shareholders. The provision of these needs to shareholders ensures that their relations are well cultivated and prevent any discretionary demands. The company`s development is directed to information system where the shareholders access the information they need periodically as it constitutes the basic rights of the shareholders (Luo, 2007). The Company`s financial reports need to provide comprehensive information on profits, assets, sales and liabilities this was mitigated by the demands imposed by the investors in 1980s and 1990s. Financial analysts and investors are bound to be provided with more frequent, detailed and understandable financial information of the company. In essence, the accounting scandals experienced in 2000s provided strict guidelines for companies to provide a more detailed and comprehensive disclosures. This has led to strict regulations by the SEC to ensure that the shareholders are not exploited by the owners of the company by being provided with vague information and outdated ones. The management benefits from the overreliance on knowledgeable group of shareholders in providing them with the strategic goals to meet, management decision making and also show the realism perspective of their undertakings in the company. The company`s maximization of the shareholders profit is deemed to be to a certain limit as the company cannot only focus its strategies on the shareholders and other interest groups are available. Despite the company`s development of departments relating to the investors, it must restrain itself to the available resources and the interest of the company as a whole(Solomon, 2010). The company should not foster much on the shareholders value strategy but rather incorporate balanced strategies for the company to achieve its long run goals. The proponent of this strategy, that is shareholder value approach, argues that the company`s focus on one interest group minimizes the dilemma of trying to satisfy the interest groups. For instance, where the company`s interest groups are many it must form a conclusive decision on the competing interests. The criterion developed on majoring on one interest group is ambiguous and ends up in determining the shareholders value as the only available strategy. Without implementation of decisive criterion, the company will face direct and concurrent dilemma. This in turn will reduce the efficiency of the workforce in the company and hence reduce the process of decision making. However, this does not imply that the company should ignore other interest groups but minimal attention should be given. For instance, the employees future will not be guaranteed when their interests are not put into consideration and also consumers tends to patronize competition when there interest fall short of concentration by the company. Finally, the proponents contend that where the company fails to make profits it will be liquidated which will have no benefit to any interest group (Crane, 2008). However, the approach has faced various challenges from the employee advocates. Under corporate theory, the company`s operability is focused on the stakeholder model. It suggests that the company`s financial position can be improved when it attends to the desires and needs of other stakeholders. This includes both the shareholders, employees, customers, distributors, auditors, government agencies etc. shareholders interest and that of employees is projected to be at odds when it comes to the layoffs (Anson, 2006). According to this model, the managers should balance between the interest of one group and the other in order for them to run the company efficiently. Therefore the shareholder value approach is at controversy as it prioritizes the needs of shareholders. Agency theory The theory emerged in the early 1970s but its conceptual framework has evolved over the years due to the demand in the financial and economic markets. The influences that fostered this theory included organization economics, property rights, political philosophy and contract law. Agency theory provides inherent explanations on the reasons why companies make acquisition ...