IntroductionCorporate governance is a topic that covers the systems that are used for directing and controlling companies’ operations (Clarke, 2007). The rules, and regulations that govern companies, and how they are applied, therefore, fall under corporate governance. In addition, to that, there are other parties apart from the management and directors, who are part of this corporate governance. These are those who oversee the management, and are involved in decision making, like the shareholders. Successful corporate governance calls for proper planning and strong strategies (Nell & Monks, 2011). This is necessary to ensure that the firm remains stable through out its operations (Hamilton & Gray, 2009).
The firm hence has to carry out feasibility studies on a regular basis, and markets researches about competitors, and initiate new methods of handling competition. Arguably, the difference between good and bad corporate governance is in the policies and strategies that are made. The difference between good and bad governance lies in the policies and strategies. Stage 1 Corporate Governance Mechanisms, their FailingsThe inability to maintain a stable and viable management system in the company is called corporate failure.
The 2007-2009 financial crises that were experienced in the US and the entire world were perfect models of corporate failures in our systems. Corporate failure is like a disease that eats up the whole body. The fact that most companies, firms and systems of the world are interconnected means that a hick up in one section can easily paralyze the whole system. This was the case in with the financial break downs that were observed during the period 2007 and 2009, leading to a crisis that almost threatened to dissolve major economies of the world.
It is evident that the managements of the firms that failed had divided attention, and greed, which were among the major contributors of their tragedies. One of the most serious problems covered in the article is management’s perspective of moral hazards. Because these were American companies, they became insensitive to changes in the economic environment, and continued to carry out selfish interests, and the taxpayer gets the burden. These companies operated their businesses without having a viable, operational strategy. This was because they knew that the government would rush to save and defend them in case they found themselves in any crisis.
As a result, they became careless, because they knew the government cares (Harbish, 2010). Despite the fact that the core value of any business is profit maximization, there is always a need to consider customer satisfaction first. This means designing, developing and selling products that have a real economic as well as non economic value to the customer. Consumer recognition was one area that these companies did not merit.
Many Americans were in need of vehicles, but not all of them were rich, manufacturing small utility vehicles would hence be a great way of winning the market, through incorporating the needs of both middle and upper class citizens. These companies, however, chose to produce expensive fuel guzzlers, hoping to earn huge profits. Deciding to sell only large vehicles was one corporate mechanism demonstrated the company’s selfishness. On the contrary, their competitors, being alien to the market recognized the needs of Americans and produced the vehicles that would help them.
The difference between American and foreign firms was that, while foreign firms strived to identify a market niche, American firms were creating a need where it was not necessary. Chrysler, for example, forced Americans to believe that they need to drive expensive fuel guzzlers, while foreign firms came in with energy efficient vehicle. This meant that Chrysler would eventually flop, since it ignored the customer’s needs.