The paper 'Corporate Governance at Commonwealth Bank" is a good example of a management case study. The effects of good corporate governance on the performance of public companies have become subject of interest to economists, financiers, behavioral scientists and business operators in different platforms (Brink 2011, p. 60). The main objective of this paper is to conduct an in-depth literature review on different theories related to good corporate governance. The paper will also analyze the Commonwealth bank on matters of corporate governance. Literature review Agency theory According to Boubaker et al (2014, p. 12), the agency approach is an economic school of thought which provides an understanding of the relationship between corporate governance and behavior.
This school of thought focuses on the incentives that the management receives to perform different responsibilities for the stakeholders (Brink 2011, p. 66). The defining attributes of this theory include the cost of business transactions, the complications involved in the conflict between essential company principles and the agency cost the agent and the principal. According to the agency approach, the transaction cost is one of the main reasons why organizations exist in the market.
This makes companies a series of contacts which when developed are aimed at improving the wellbeing of these companies to improve on their competitive advantage and market share (Chetty et al, 2007, p. 46). This makes it the responsibility of the management to act as a representative of the shareholders when making decisions ion the operations of the company in the highly competitive and dynamic market (Clarke 2004, p. 155). According to Evans et al (2002, p. 34) when the cost of operationalizing the company in the market and enforcing different contracts is relatively higher compared to that of engaging in an authoritative allocation of resources, agency theory asserts that it is necessary to ensure that economic activities are integrated within the financial limits of the company.
This is an indication that for a company to experience any form of growth in its ability to engage in different transactions in the market, it must have the capacity of determining the cost of specific transactions in the market and its ability to integrate such transactions to fit in its financial capabilities (Cornelius et al 2003, p.
40). According to the agency approach, agency cost plays an important role in boosting good corporate governance in an organization (Jensen & Meckling 1976, p. 355). The relationship between the principal and the agent makes it’ s relatively difficult to develop an argument that the former will trust the latter to make business decisions at zero cost (Fernando 2009, p. 16). This is the view of the principal explains why there is a need to consider different aspects of agency cost (Jensen & Meckling 1976, p.
5). To ensure that the agency cost does not exceed the financial capabilities of a company, the principle must play an oversight role by instituting monitoring and evaluations structures to check the decisions that the agent makes. It is factual that the decisions made must always incur some costs. However, it is the responsibility of the principal to set aside financial resources to begin to the agents as incentives to minimize the possibility that they will engage in malpractice (Idowu et al 2014, p. 23). This makes the agency cost, the financial resources spent to run a company, being the principals, the shareholders must ensure that they are the budgets of the company are in line with the mission, goals and objectives of the company.
Being the agents, the management has the responsibility of ensuring that they operate with the resources provided by the shareholders. This is by ensuring that the agency cost does not exceed the gains that the company acquires in the form of profits (Rezaee 2008, p. 111).
ASX Corporate Governance Council. 2010. Practices of Good Corporate Governance and Best
Practice Recommendations. http://www.asx.com.au/documents/asx-compliance/principles-and-recommendations-march-2010.pdf
Boubaker, Sabri, and Duc Khuong Nguyen. 2014. Corporate governance in emerging markets:
theories, practices and cases. http://search.ebscohost.com/login.aspx?direct=true&scope=site&db=nlebk&db=nlabk&AN=753001.
Brink, Alexander. 2011. Corporate governance and business ethics. Dordrecht: Springer Verlag.
Chetty, Raj, and Emmanuel Saez. 2007. An agency theory of dividend taxation. Cambridge,
Mass: National Bureau of Economic Research.
Clarke, T. 2004. Cycles of Crisis and Regulation: The Enduring Agency and Stewardship
Problems of Corporate Governance. Corporate Governance: An International Review, 12 (2), 153-61.
Cornelius, Peter K., and Bruce Kogut. 2003. Corporate Governance and Capital Flows in a
Global Economy. Oxford: Oxford University Press, USA. http://public.eblib.com/choice/publicfullrecord.aspx?p=422828.
Du Plessis, Jean J., James McConvill, and Mirko Bagaric. 2005. Principles of contemporary
corporate governance. Cambridge [u.a.]: Cambridge Univ. Press.
Evans, James R., and James R. Evans. 2008. Quality and performance excellence: management,
organization, and strategy. Mason, OH: Thomson Business and Economics.
Fernando, A. C. 2009. Corporate governance: principles, policies and practices. New Delhi:
Finkelstein, Sydney, Donald C. Hambrick, and Albert A. Cannella. 2009. Strategic leadership:
theory and research on executives, top management teams, and boards. New York: Oxford University Press.
Freeman, R. Edward. 2010. Stakeholder theory. Cambridge University Press.
Friedman, Andrew L., and Samantha Miles. 2006. Stakeholders theory and practice. Oxford:
Oxford University Press. http://site.ebrary.com/id/10271574.
Hirschey, Mark, Kose John, and Anil K. Makhija. 2009. Corporate governance and firm
performance. Bingley [etc.]: Emerald/JAI.
Idowu, Samuel O., and Kiymet Tunca Caliyurt. 2014. Corporate governance: an international
Jensen, M., &Meckling, W. (1976). Theory of the Firm: Managerial Behavior, Agency Costs and
Ownership Structure. Journal of Financial Economics , 3, 305-60.
Monks, Robert A. G., and Nell Minow. 2011. Corporate governance. Chichester: Wiley.
Niskanen, William A. 2007. After Enron Lessons for Public Policy. Rowman & Littlefield Pub
Phillips, Robert. 2003. Stakeholder theory and organizational ethics. San Francisco, Calif:
Phillips, Robert A. 2007. Stakeholder Theory Impacts and Prospects. Cheltenham: Edward Elgar
Rapoport, Nancy B. 2004. Enron: corporate fiascos and their implications. New York:
Rezaee, Zabihollah. 2008. Corporate governance and ethics. Hoboken, N.J.: Wiley.
Urlacher, Pauline V. 2008. New issues in corporate governance. New York: Nova Science
Weiss, Joseph W. 2014. Business ethics: a stakeholder and issues management approach.
Wessels, David W. 2000. Organizational structure, agency theory, and capital allocation.
Zakhem, Abe J., Daniel E. Palmer, and Mary Lyn Stoll. 2008. Stakeholder theory: essential
readings in ethical leadership and management. Amherst, N.Y.: Prometheus Books.