Contemporary Corporate Governance Issues

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Contemporary Corporate Governance Issues
Introduction
The term corporate government has recent been used very much therefore prone more research on what it underlies the whole concept. There are different issues that have been of late been coined especially in trying to come up with the right definition that will suit its full mandate. Very many definitions have surfaced in pursuit to understand corporate governance depending on its faction especially to its stakeholder. Various definitions have come up especially encompassing finance and business. Others try to ensure that they make it understood in terms of formation of stock markets and joint stock companies. Therefore, due to the complexity that the whole issue has brought in the world of business, we will look at different definition as has been brought by different people.
The first definition according to Zingales as suggested in Leng 2009, says that corporate government is a complex set of constrains that shape the Ex-post bargaining of the quasi partner as generated by an organization. Shleifer and Vishny also provided another definition of the same saying that it is an arrangement of institution that the suppliers of the finance to the organization assures themselves of getting a good return of their investment. Cadbury Report gives a more comprehensive definition by saying that corporate governance is a system by which corporate and company are directed and control to achieve a predetermined goal. Nevertheless, the best definition so far that most the business related company and organization are using comes from the Economic Co-operation Development (OECD). They said that corporate governance is a set of relationships that occur between the company management, its shareholders, board members and other stakeholders. It ensures that it provides the structure through which the objectives will be set in the company and the way they will be met through thorough monitoring of the process to meet them. The definition emphasizes that the corporate governance should en sure that they offer incentives to the board and the company management to en sure that their morale is boosted in pursuit of achieving the company‘s objectives. They should ensure that monitor the effectively the set objectives of the company and encourage the stakeholders to use the available resources that are on their disposal to ensure that they reach to the postulated goals for the interest of the company and the shareholders ( Leng, 2009).
Therefore, the function of the corporate governance in the company is to ensure that the value of the company that is underlying the interest of the organization fraternity has been aligned to meet the required goals. They do this well by becoming the centre of the policy maker of the organization, encouraging investment by giving good environment for the same, and ensuring that the morale in the organization is its best.
Importance of corporate governance
In the recent business world, corporate governance has become so predominant. There is no day that goes before this has been named. Therefore, this makes it important to look at the importance of it in the business arena. The first that make the subject so important is the rate at which the capital market has grown recently over past years. This makes it inevitable to undermine the issue of corporate governance. The other reason that makes the subject to be rampant all over is the issue of academic research that makes it important to know the effectiveness that corporate governance has in maximizing the national productivity. The academic world has grown interest to ensure that bring to public about how various firms are operating in their functions. This makes it important to know the effects that the corporate governance have in such companies and how they can be used in various to the advantage of the stakeholders. Finally, due to the alarming privatization process across the globe, the government has seen the importance of ensuring that they amalgamate politics and economic issues to improve their corporate governance mechanisms. This has lead to people as well as organization to turn their focus on researching and understanding this corporate government aspect (Prentice & Holland 1993).
There have been so many company that have been publicized due to their fraudulent nature that made them go under receivership due to bad or malfunctioning corporate governance. These company , for example Enron WorldCom, that was declared bankrupt due to well planned accounting fraudulent has provoked the world to seethe need of good understanding of the corporate governance. Through its study, corporate governance issues have lead to reforms across the world leading to the organization adopt right and effective governance measures to ensure that they are not caught up by mistrust by their stakeholders.
Some of the changes that have been experienced across the globe according to Tuck School of Business 2003, are as the one that were done by the US congress through establishing law to improve the company`s responsibilities and financial disclosure to avoid fraudulence. This was done in the Sarbanes-Oxley Act of 2002. The Act ensures that the company withholds financial transparency, independence and accountability of the board members. Such regulation when well use by the company may reduce the failure of the company though the force of the market to self correct itself if due governance is not carried out in a company may also be an issue that the company cannot run away with if poor corporate governance is in place.
Requirements for effective corporate governance
For the corporate governance to be effective in any of the organization in the world, micro and macro economic must be well looked at. Therefore, the organization should be subjected in a business place where political and macro economic are stable. There should well establish legal as well as regulatory systems in the business arena to ensure that the business is not adversely affected by the negative effects that are brought by poor enactment of such. Such regulatory ensures that the stakeholders understand that the success that is encompassed by their compliances is good and bigger as well as the penalties that is attached therein incase of failure of compliance is equally big. Therefore, when macro-economic and good political ground has been provided to the business, it makes business manager to concentrate on long-term goals(Maassen & Rancesco 1999). They are able to project their resources on issues that will make their company be sustainable for long period as it still benefits all its stakeholders.
The other requirement for effective corporate governed to ensure that shareholders of the company can be helped is health market competition. This is because competition will lay the required foundation to the company to ensure it expand through innovation and good services delivery. According to Marshall et al 2008, monopoly of the market by any of the company will make them have excess economic rents making them to have market opportunistic behaviors, which will eventually turn the company down, as it will tend to relax. Otherwise, for corporate governance to the company to make a complete revolution that will be beneficially to the stakeholders, laws, good stock exchange regulation and non-statutory codes among others are not the only paramount issues that should be tackled. It should be well understood that best application of the corporate conduct is required that matches modern economical world and capital enterprise.
The main objective of the corporate governance is to ensure that the underlying issues that they may cost the investment of the shareholders are aligned through cost effective method to ensure they benefit. It is also meant to suppress the self-interest that the managers and any other shareholder that may be having in the company for the overall gain of all. It therefore gives incentives and ensure good working environment to ensure that the stakeholders morale is always utmost hig...