The paper "Corporate Governance at Commonwealth Bank and Its Significance in Contemporary Business" is a good example of a business case study. Corporate governance has created divergent principles governing the operations of organizations, notably in the banking industry. Simply put, corporate governance refers to the system by which an organization is directed and controlled where it outlines the specific distribution of responsibilities between managers and shareholders. In the wider spectrum, it integrates the relationships between stakeholders, bothers external (customers) and internal (employees). The definition of corporate governance is twofold: the design of organizations that enforce management that internalizes the stakeholder’ s welfare.
The various subjects of corporate governance, this paper confronts, presents specific attributes that contribute to its significance in contemporary business. Literature Review The agency Approach The agency theory places the stakeholders as important players in any corporate governance structure (Lan and Heracleous, 2010). The agency theory is defined as the premise that surrounds the relationship between the directors or managers and the organizations. The agent’ s interest might conflict with the organization’ s goal. A well-developed market for corporate control is non-existent that may lead to asymmetric information, incomplete contracts, and moral hazards, to name a few.
A number of governance approaches have been created including, but not limited to the prudent market competition, financial institutions, debt and effective board of directors. The creation of an effective board of directors is paramount to any organization and a feasible option for corporate governance mechanism. Managers or agents may not always function to the shareholder’ s interests when controlling a company; rather they may be “ satisfiers” , as opposed to being “ maximisers” (Bonazzi and Islam, 2007). Simply put they tend to act safely, and they seek preferred levels of growth since they are more concerned with their individual interests.
Consequently, the shareholder tends to task decision-making duties to the agents within their expectation that the agent will perform in their interest. The principles can be certain that the agents will make calculated decisions, in the case when appropriate incentives are offered, and well placed under scrutiny. Corporate governance, therefore, is paramount to the organization given the multiple functions engaged at different levels. Stakeholder Approach The stakeholder approach to corporate governance suggests a change from the conventional role of the board of directors as protectors of the stakeholder’ s interest.
As a top-level governance body, the directors are tasked with settling of standards and values within the organization through their decisions pertaining to incentives, strategy and internal control systems. In this respect, a body that significantly seeks to commit to CSR strategies and seek to address the stakeholder’ s needs may be attuned to its new operation roles. The stakeholder’ s theory suggests that companies need to attune their strategy in line with the stakeholder’ s interest – individuals that are affected by the firm’ s operation.
The stakeholders are valuable; therefore the company has the sole responsibility of committing to their demands. Secondly, addressing the stakeholder’ s needs is conceptualized as important in augmenting the company’ s profitability (instrumental approach). The main goal of CSR is to develop an increased value for the stakeholders in fulfilling their responsibilities towards them. Evidently the stakeholder’ s approach presents the governance process that controls the managers and other organizational participants in the ensuring that they function towards the owner’ s interest.
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