Corporate Governance Essay Example | Topics and Well Written Essays - 2000 words

Corporate Governance - Essay Example Such an argument is made with specific reference to the role that companies play in the social and economic lives of the society at large. The governance of corporations is also debatable at governmental level as per the political powers they may exercise and the world wide reach of the business in the globalized economy. Governments are taking keen interest in the governance matter of the companies not only to secure the national economy and shareholders rights but also to protect the global share of the country in the international markets. On the other hand, the finance providers including the individuals, banks, financial institutions and governments (in their role as investor) seek guarantee that their resources are being utilized in an efficient manner and create sufficient profits for them. This guarantee or assurance leads to the necessity of good corporate governance in place. In other words we can say that good corporate governance leads to increased shareholder trust and a ttracts potential investors due to the assurance that their resources will be secured (Macey 2008). Corporate governance can be defined in a number of ways. ... The main idea is the governance of corporations with an aim to increase stakeholder trust and confidence in the company’s operations, strategies, outputs and practices. Such a system of running businesses lead to the compliance with legal, constructive and social obligations which further enhances the credibility of the corporation in terms of gaining trust and assurance of the stakeholders (Monks & Minow 2004; Ali & Gregoriou 2006). Economic Reasons The corporations are governed by the directors through the managers and lower level staff, however, shareholders holds the directors accountable for the matters concerning the businesses. Corporate governance should be a matter of shareholders as their investments are at stake with the business’s reputation, operations and governance. Shareholders need an assurance of the security of their shareholdings. The returns that the business generates are eventually distributed among the shareholders. The governance of a corporatio n, hence, is of immense importance to the shareholders in terms of the economic benefits it may bring. Alternatively, any inappropriate action or decision taken by the directors held them accountable to the shareholders. Friedman (1962) suggests that the shareholder theory claims that corporation decisions should be made to enhance the value of shares to increase returns for the shareholders. Further, the agency relationship that exists between shareholders and directors may form the basis of good corporate governance practices, whereby, directors act as agents to the shareholders. In other words, the corporate governance codes and practices, as per the