Corporate Governance




Corporate governance is a system of directions, policies, controls and clearly defined responsibilities to manage the business, overcoming conflicts of interest and enhance corporate accountability (Lanno, 1999). Moreover, it is a process of maintaining good relationship with shareholders and stakeholders (Ruin, 2001). Whereas, the ultimate objective is to realize long term shareholder value and interest of other stakeholders (Pass, 2004).


In today’s large number of collapses of well-known companies, the emphasis on corporate governance practices and systems were highly recommended by many governments to ensure assets of the company are used efficiently (Kirkpatrick, 2009). However, the necessity of investigating corporate governance practices in emerging markets is increasing due to vast differentiation of social, cultural and economic factors which are productively contributing on company performance (Flora, 2006).

Table 1, Features of a good corporate governance
Source : Phillips and Thomas (1992)
Fulfill strategic goals of an organization, increase the shareholder value in turns create a dominant market share among the competitors
Employees are considered, cared and given prominence to their job roles
Takes responsibility in fulfilling needs of the local community and establish value creation
Enrich the relationships with customers and suppliers in business activities
Maintains compliance with legal and regulatory requirements


Table 2: Benefits of Corporate governance
Source: Sulong and Mat Nor (2010).
Helps organizations to ensure adequate and appropriate systems of controls are used in day to business activities
Single individuals would not have the chance to influence for activities unnecessarily
Bridge the relationships between board of directors, management, shareholders and other stakeholders
Assurance of company activities are managed in the best interest of the shareholders and the other stakeholders
Expertise within the company may  safeguard the company assets
Encourage accountability and transparency in corporate performance

References

Flora, N. (2006). Corporate governance and the quality of accounting earnings : a
candian perspective , International journal of managerial finance,  2, 302- 327
Kirkpatrick, G (2009). The corporate governance lessons from the financial crisis.
Financial Market Trends, 2009,51-77
Lanno, K. (1999). A European perspective on corporate governance. Journal of
Common Market Studies, 37(2), 269–295.
Pass, C. (2004). Corporate Governance and the Role of Non-executive Directors
in Large UK Companies: an Empirical Study', Corporate Governance vol. 4(2), 52-63.
Phillips, M. H., & Thomas, A. (1992). Corporate governance: a reporting
perspective
Sulong, Z., & Nor, F. M. (2010). Corporate Governance Mechanisms and Firm
Valuation in Malaysian Listed Firms: A Panel Data Analysis. Journal of Modern Accounting and Auditing, 6(1), 1-18.

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