Term Paper: Corporate Governance

Pages: 6 (2666 words)  ·  Bibliography Sources: 1+  ·  Level: College Senior  ·  Topic: Business  ·  Buy This Paper


[. . .] In order to compensate for this, the system of claw back was initiated, whereby an executive had to pay back his share of the unprecedented profits. (Monks; Minow, 1995, p.94)

Another method was to expense stock options so that all costs would be more transparent, and the result would be that excesses could be controlled to a large extent, and the pay packages would be adequate. The issue of unauthorized groups or cartels that benefit from corporate control is another one that has to be tackled by corporations. (Williamson, 1979, p.81) These groups are more interested in investing in resources that are controlled, rather than in resources that would benefit others by either creating new wealth, or by making use of resources to make new wealth. The government is manipulated, the state is manipulated, and the corporation is made use of in their climb to political and economic power, and as a result, there is stiff competition and rivalry between firms and this only leads to a gain of finances for the cartels or groups and a gross misuse of finances by the warring firms. The nation's economy suffers as a direct result of such actions as its precious economic resources are wasted by unnecessary expenditure. The cartels and insiders together create a massive loss of economy as one operates within the economy at the same time as the other. An example would prove this. In certain developing economies, a large amount is invested in production. This is hardly utilized by the countries that have scarcity of finances. (Charkham, 1994, p.40)

Today, there is a lot of change happening in the corporate industry. These changes may be the creation of new technology as a response to changing consumer needs, and new competitions, all of which involves huge amounts of money and human resources. This may induce a resistance to change by the corporations as they may feel that there is no need for global competition. This may harden the bureaucracy against any change, and build up stiff resistance to the same, resulting in a volatile economy. (Fort, 2001, p. 66) To break out of this vicious cycle, corporations need to concentrate on corporate governance in both financial and non-financial sectors of the company, as well as on the real sector. Policy makers have to keep in mind these factors while making changes in their policies, and also see to it that there is interaction between all facets of the corporation, including other main institutions and policies concerning them. The dividing line between voluntary and mandatory, between judicial enforcement and regulatory enforcement must be made clear. This would sort out other problems as well. (Preston, 1995, p.20)

The intense pressure laid on short-term market capital performance is another issue that is threatening the corporations today. This, along with the issue of compensation for the management, is the issue that threatens corporations. When the modern day financial wizards and managers ask for quarterly performance reports, the management feels obliged to show better and better figures, when there are actually none. This is what happens when there is intense pressure on performance and many people to judge the performance. Added to this is the freedom to turn money around at will that could become dangerous if allowed to continue. The goal should be that of a better future in the long run, rather than on excellent short-term performances. Information about performances, both financial and non-financial should be made available to the management, rather than information that puts intense pressure on the management for the achievement of short-term targets. (De George, 1995, p.82)

On the other hand, there should be more internal information within the company. This would lead to a better exchange of ideas within the company, and this would lead to the disclosure of any potential problems before they escalate. Information, as such, should be available to the board at all times, as and when required by them. All aspects of the information must be made available to the public as well as to the shareholders and the true picture of the company would be visible to all. When a company is to be measured as to its stability as well as reliability, a financial score card is used. However, this cannot be taken as an accurate measure of the future performance of the company, since change happens all the time. If there were to be a measure, then the customer's satisfaction can be taken into account. This would certainly give a better picture than the financial aspect of the company, wherein human resources and operations cannot be measured. (Gugler, 2001, p.143)


Now the picture of what corporate governance is about, and the effect that it has on the economy, is clear. Both public and private sectors are ruled by this concept. The impact that corporate governance has on not only the company but also on the government has also been examined. The issues that govern corporate governance have been discussed, and possible solutions have been arrived at. The future will depend on the individual rather than on the group. His performance level and his integrity will be the main focus of these issues, wherein his strong sense of ethics would keep him on the right path. Internal as well as other auditors need to work in collaboration with the private sector for the betterment of the company, whose public policy should enable it to also work with certain private groups to ensure that audits are organized regularly and independently.

All the major players in the company should be agreeable on most matters concerning the company in order for it to function efficiently. Stakeholders and investors and the government have a right to demand information and it is the duty of a well-governed corporation to see to it that it is provided on demand. The stability of the economy will depend on corporate goals and the various decisions made by the board. All the major factors that govern corporate governance have been seen, and the fact that the financial statements of a company need not be the yardstick for the measurement of its performance, but rather, the extent of its ethical values, has also been discussed. The moral value of the people that run a company have been seen and judged as being more important than just the financial and non-financial values of the company.


Charkham, Jonathan. 1994. 'Keeping Good Company: A Study of Corporate Governance in Five Countries' New York: Oxford University Press.

Davies, Adrian. 1999. 'A Strategic Approach to Corporate Governance' Gower.

De George, Richard T. 1995. 'Business Ethics' New Jersey: Prentice-Hall, Inc.

Fort, Timothy L. 2001. 'Ethics and Governance: Business as Mediating Institution' New York, N.Y: Oxford University Press.

Gugler, Klaus, editor. 2001. 'Corporate Governance and Economic Performance' Oxford: Oxford University Press.

Monks, Robert A.G; Minow, Nell. 1995. 'Corporate Governance' Cambridge, U.S. Blackwell

Preston, Lee E. 1995. 'Corporate Boards and Corporate Governance' Society, March/April, pp.… [END OF PREVIEW]

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