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The Rising Importance Of Corporate Governance In Contemporary Business Environment

1816 words - 7 pages

Question 3Why has improved corporate governance become an increasingly important topic in recent years? Consider the cost and benefits of different groups (e.g. shareholders, employees, government etc) of changing rules in corporate governance.INTRODUCTIONThis paper aims to examine why corporate governance has become increasingly important in the contemporary business environment. Additionally, it explores the cost and benefits of applying the principles and rules of corporate governance to an organisation's stakeholders. However, to effectively address this issue, I will firstly define what is meant by corporate governance.Corporate Governance DefinedThe Organisation for Economic Co-operation and Development (April 1999) defines Corporate Governance as "the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation such as the board members, shareholders and other stakeholders….." World Bank President J. Wolfensohn says that Corporate Governance' is about promoting fairness, integrity, transparency and accountability. Vindel L. Kerr, author of Effective Corporate Governance defines it as "the law, regulations and acceptable business practices which together determine the relationship, in a market economy, between corporation owners and corporation managers………..and those who invest resources in the corporation". The term corporate governance has come to mean many things. It describes:The process by which companies are directed and controlledThe encouragement of companies compliance with codes of good practice and ethicsA field of economics, which studies many issues arising from the separation of ownership and control.In summary, corporate governance spells out the rules and procedures for making sound ethical, balanced and legal decisions on corporate affairs. It provides clear structures for developing and communicating company's objectives as well as defining strategies for attaining and monitoring the performance of those objectives.Objectives of Corporate GovernanceThere are certain key objectives of corporate governance. They include:Facilitating efficient and effective management of the corporation by requiring them to follow formal procedures when making important decisions or taking certain actions;Promoting honesty, accountability in management by imposing upon directors certain duties, responsibilities and parameters in recognition of their position; andEncouraging application of core values that a corporation wishes defines for itself.Why has improved Corporate Governance become an increasingly important topic in recent years?In recent times corporate governance has attracted a great deal of public and political interest, one of the most fundamental reasons, is the massive bankruptcies and criminal malfeasance of Enron and it's accounting firm Arthur Andersen,...

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