Corporate governance and EthicsIntroductionDue to the collapse of high profile large corporations, there has been renewed interest on the importance of maintaining corporate governance. Some of the reasons that caused this collapse include fraud and focusing on other benefits other than maintaining shareholders’ interests. Anand and Rosen (2008) describes that corporate governance is referred to the set of processes, customs, policies and laws that affect the manner in which a country or a company is directed and controlled. It also includes relationships among various stakeholders and the goals governing a particular corporation.
In the modern businesses, shareholders are referred as the main external stakeholders of a company other include debtors, suppliers, customers and communities. The internal stakeholders include executives, board of directors and the employees. One important factor showing the nature of corporate governance is the extent of accountability in an organizational setup. The other factor is the techniques used in eliminating the principal-agent conflicts. Corporate governance strongly emphasizes on the importance of shareholders’ welfare that is mostly applied in the contemporary public developments. Embinski et al. (2006) shows in US for example large corporations collapsed due to fraud such as Enron Corporation and the MCI Inc.
This problem was linked to the Sarbanes-Oxley Act that was passed by the federal government in 2002 that was intended to renew public confidence in corporate governance. There were other companies failures experienced in Australia for example the HIH and One Tel where the problems were caused by the ultimate passage of CLERP 9 reforms. Corporate failures in other countries have increased interest on regulations and maintained public and political interest in regulating corporate governance. Corporate governance complies with legal and regulatory requirements and ensures that environmental and local community needs are effectively met.
Considerable interest shows how the external systems and markets influence corporate governance. Crawford (2007) describes that most public companies view shareholders as owners of the company and this affects the definition of corporate governance. One example is where the SEBI committee in India showed that corporate governance is where managers accept absolute rights of the company shareholders and consider them as owners whose role is to delegate duties to their agents in this case the management.
The company trustees should be committed to values and be able to distinguish between personal and corporate funds. This Indian approach is derived from the Gandhian principle of trusteeship where managers act as trustees. It is complex how shareholders own public traded corporations and this ownership may lead to ambiguity where these shareholders fail to exercise ownership rights. Corporate governance is the way power is exercised for the management of social and economic resources in order to attain sustainable human development. It maintains a dynamic balance between the importance of order and equality in the society.
It also facilitates efficient production and delivery of goods and services through accountability and the use of power. Importance of corporate governanceCorporate governance promotes efficient, effective and sustainable businesses that creates wealth, employment and solves societal problems. Secondly, corporate governance promotes responsive and accountable companies. It also promotes legal companies managed with full integrity, probity and transparency therefore reducing misuse of power from management. It also recognises and protects the rights of stakeholders eliminating exploitation of some stakeholders such as employees.