Essays on Corporate Governance and Performance Assignment

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The paper "Corporate Governance and Performance" is a great example of an assignment on business. The practice of corporate governance changes over time and the ASX Corporate Governance Council articulates and updates policies that guide good corporate governance. The 2010 version of the corporate governance principles and recommendation offers eight principles that act as a reference point for Australian businesses. The first principle addresses the fundamental need for businesses to have boards that can provide strategic guidance and oversight. The second principle addresses the composition of the board by stating that members should have independence, experience, and a variety of skills to ensure that the board is suited to the scope of the company’ s operations.

The third principle focuses on ethical behavior and responsible decision-making (ASX Corporate Governance Council 2007). The fourth principle concentrates on meeting the information needs of modern investors by providing factual data on the company’ s financial position. The fifth principle goes on to state that all critical aspects of a business need to be reported in a factual and timely manner. The sixth principle addresses the need for companies to respect the rights of shareholders and create an environment where they can exercise their rights in an effective manner.

Risk evaluation is part of the corporate governance framework. The seventh principle recommends that companies should strive to identify, monitor, manage, and disclose business risks. Finally, the eighth principle concentrates on fair and responsible remuneration (ASX Corporate Governance Council 2007). Part 2 According to Edwards & Clough (2005, p. 1), performance is one of the dimensions of corporate governance. Therefore, it can be assumed that a high-performing governing body can play a vital role in guaranteeing improved organizational performance.

To confirm this assumption, there is a need to examine empirical research on the link between organizational performance and corporate governance. Pham, Suchard & Zein (2007) conducted a study on large firms in Australia with the aim of determining the relationship between corporate governance mechanisms and the cost of capital. The study found that smaller and more independent boards, greater insider ownership, and the presence of institutional block holders reduce the perception of risk in a firm. Therefore, investors and lenders demand a lower return on capital leading to greater value for shareholders. In a subsequent study, Pham, Suchard & Zein (2011) studied the top 150 firms in Australia to determine whether there is a relationship between corporate governance and a firm’ s performance.

The selected performance measures were Tobin’ s Q and Stern Stewart EVA, and the finding was that there was no significant relationship between these performance measures and corporate governance (Pham, Suchard & Zein 2011, p. 12). However, this finding suggested that there are weaknesses in the two performance measures that hinder the recognition of the impacts of governance mechanisms on organizational performance. While the two studies by Pham, Suchard & Zein concentrated on large firms, Lama (2012) undertook a similar study but focused on mid-sized organizations.

The study compared the corporate governance ratings of 60 firms with their performance in terms of return on equity, earnings yield, and return on assets. The conclusion from this empirical study was that shareholders get better returns in companies that have good governance systems as measured by their compliance with corporate governance best practices (Lama 2012, p.

75). This confirms the validity of the theoretical assumption that high-performing governing bodies guarantee better organizational performance.

References

ASX Corporate Governance Council (2010). Corporate Governance Principles and Recommendations with 2010 Amendments. Australian Securities Exchange, Sydney.

Australian Institute of Company Directors. (2013). Good Governance Principles and Guidance for Not-For-Profit Organisations. Viewed at [8 April 2015]

Centro Retail Australia 2012. Annual Report 2012. Federation Centres, Melbourne

Cochlear 2015. Annual Reports. Cochlear Limited. Viewed [9 April 2015]

Corkery, J., & Medarevic, S. (2013). Executive remuneration under scrutiny: The cutting edge of the 'shareholder spring'. Corporate Governance eJournal, Vol. 1. pp. 1-16

Edwards, M., & Clough, R. (2005). Corporate governance and performance: an exploration of the connection in a public sector context. Canberra: University of Canberra.

Federation Centres 2013. Annual Report 2013. Federation Centres Limited, Melbourne

Federation Centres 2014. Annual Report 2014. Federation Centres Limited, Melbourne

Lama, T. B. (2013). Empirical Evidence on the Link between Compliance with Governance of Best Practice and Firms' Operating Results. Australasian Accounting, Business and Finance Journal, 6(5), 63-80.

Pham, P. K., Suchard, J. A., & Zein, J. (2011). Corporate governance and alternative performance measures: evidence from Australian firms. Australian Journal of Management, 36(3), 371-386.

Pham, P. K., Suchard, J., & Zein, J. (2007). Corporate governance, cost of capital and performance: Evidence form Australian firms. Working paper. School of Banking and Finance. University of New South Wales.

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