Context and Background
One of the foremost objectives of any business is profit maximization; each and every organization wants to run a profitable and sustainable business activity alongside satisfying the needs of its customers. It wants to set a mark, and be differentiated amongst its competitors whilst increasing its market share value.
However in regards to the prospects of profit maximization, every business must ensure that it adheres to a strict code of conduct, enforce internal controls and abide by set rules and regulations. Corporate governance refers to such a system by which companies are controlled and governed by. It provides a core set of guidelines and principles towards compliance of regulations in the corporate environment with business being conducted in fairness and integrity (Thomson, L. 2009). It monitors that the transactions and overall operations of a business are carried out in an ethical manner with transparency and no ambiguity. Furthermore, it looks into the company’s management and its effectiveness, the governing committees, and relations with shareholders (FRC, 2011).
In recent times, corporate governance has gained interest due to the deceptive and misleading business practices. Businesses falsify the disclosure of their financial statements in order to improve profitability. In such transgression, many have been found victims of accounting fraud and corporate scandals. Since the bankruptcy of Enron and WorldCom, 2 of the biggest scandals in history, governing bodies all around the world have taken a major stand in development of austere standards such as the Sarbanes-Oxley Act in the US and the Corporate Governance Code in the UK (Labaton, S. 2006).
In addition, this strict enforcement has caused alterations to the way businesses are controlled and managed (ICAEW, 2013). Since standards are embedded into the hearts of every business and are now required for rigorous accountability; what overall impacts has it had on businesses? Every year or so, the exposure of a major accounting scandal becomes headline and hence targets the current Corporate Governance standards. As a result, this literature review looks into all those aspect and tries to understand the true value and importance of corporate governance alongside the concurrent effects it has on businesses.
In order to guide my research, three key objectives were posed and investigated to understand the breadth of this subject. The objectives are as follows:
1) What is the true importance of Corporate Governance in the corporate world?
2) Does Corporate Governance pose a significant impact on the performance and valuation of businesses?
3) How is effectiveness measured in the Corporate Governance framework pursued by businesses?
The first and primary most objective of this report is to understand the true importance and value of corporate governance, with looking onto the need of such governance. Even though, as per to Corporate...