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Corporate governance is a multi-faceted subject. An important part of corporate governance deals with accountability, Fiduciary Duty and mechanisms of auditing and control. In this sense, corporate governance players should comply with codes to the overall good of all constituents. Another important focus is economic efficiency, both within the corporation (such as the best practice guidelines) as well as externally (national institutional frameworks). In this "economic view", the corporate governance system should be designed in such a way as to optimize results. Some argue that the firm should act not only in the interest of shareholders, but also of all the other stakeholders. Recently there has been considerable interest in the corporate governance practices of modern corporations, particularly since the high-profile collapses of firms such as Enron Corporation . DEFINITION The term corporate governance has come to mean many things. It may describe:
At its broadest, corporate governance encompasses the framework of rules, relationships, systems and processes within and by which fiduciary authority is exercised and controlled in corporations. Relevant rules include applicable laws of the land as well as internal rules of a corporation. Relationships include those between all related parties, the most important of which are the owners, managers, directors of the board (when such entity exists), regulatory authorities and to a lesser extent employees and the community at large. Systems and processes deal with matters such as delegation of authority, performance measures, assurance mechanisms, reporting requirements and accountabilities. In this way, the corporate governance structure spells out the rules and procedures for making decisions on corporate affairs. It also provides the structure through which the company objectives are set, as well as the means of attaining and monitoring the performance of those objectives. Issues of Fiduciary Duty and accountability are often discussed within the framework of corporate governance. Whilst the term has a descriptive content, it is commonly used in an aspirational sense, by way of holding out a model which practice should seek to emulate. Reference can be made in this regard to various statements of corporate governance principles or guidelines, both hortatory and prescriptive. As a result of the separation of stakeholder influence from control in modern organisations, a system of corporate governance controls is implemented on behalf of stakeholders to reduce Agency Cost s and Information Asymmetry . Corporate governance is used to monitor whether outcomes are in accordance with plans; and to motivate the organisation to be more fully informed in order to maintain or alter organisational activity. Primarily though, corporate governance is the mechanism by which individuals are motivated to align their actual behaviours with the overall corporate good (ie maximum aggregate value generated by the organisation and shared fairly amongst all participants). Ozekmekci, Abdullah, Mert(2004)"The Correlation between corporate governance and public relations" HISTORY In the 19th Century , state corporation law enhanced the rights of corporate boards to govern without unanimous consent of shareholders in exchange for statutory benefits like appraisal rights, in order to make corporate governance more efficient. Since that time, and because most large publicly traded corporations in America are incorporated under corporate administration friendly Delaware law, and because America's wealth has been increasingly securitized into various corporate entities and institutions, the rights of individual owners and shareholders have become increasingly derivative and dissipated. The concerns of shareholders over administration pay and stock losses periodically has led to more frequent calls for Corporate Governance reforms. How did we get here? Many years ago, worldwide, buyers and sellers of corporation stocks were ''individual'' investors, such as wealthy businessmen. Over time, markets have become more ''institutionalized''; buyers and sellers are largely institutions (e.g., Pension Fund s, Insurance Companies , Mutual Fund s, Hedge Funds , investor groups, and Bank s). The rise of the institutional investor has brought with it some increase of professional diligence which has tended to improved regulation of the Stock Market (but not necessarily in the interest of the small investor or even of the naïve institutions, of which there are many). Unfortunately, there has been a concurrent lapse in the oversight of large corporations, which are now almost all owned by large institutions. The Board Of Directors of large corporations used to be chosen by the principal shareholders, who usually had an emotional as well as monetary investment in the company (think Ford), and the Board diligently kept an eye on the company and its principal executives (they usually hired and fired the President , or Chief Executive Officer — CEO). Nowadays, if the owning institutions don't like what the President/CEO is doing and they feel that firing him will be costly (think " Golden Parachute ") and/or time consuming, they will simply sell out their interest. Also, nowadays, the Board is mostly chosen by the President/CEO, and may be made up primarily of his cronies (or, at least, officers of the corporation, who owe their jobs to him, or fellow CEOs from other corporations). Since the (institutional) shareholders rarely object, the President/CEO generally takes the Chairman of the Board position for himself (which makes it much more difficult for the institutional owners to "fire" him). Since the marked rise in the use of (e.g., Exchange-traded Fund s (ETFs), Stock Market Index Options {Link without Title} , etc.) has soared. So, the interests of most investors are now increasingly rarely tied to the fortunes of individual corporations. But, the ownership of stocks in markets around the world varies; for example, the majority of the shares in the Japanese market are held by financial companies and industrial corporations (there is a large amount of cross-holding among Japanese Keiretsu corporations and within S. Korean Chaebol 'groups') [http://www.asianresearch.org/articles/1397.html], whereas stock in the USA or the UK and Europe are much more broadly owned, often still by large individual investors. the latter half of the 1990's, during the Asian Financial Crisis , a lot of the attention fell upon the corporate governance systems of the developing world, which tend to be heavily into Cronyism and Nepotism . In the first half of the 1990's, the issue of corporate governance in the U.S. received considerable press attention due to the wave of (belated?) CEO dismissals (e.g.: , Arthur Andersen , Global Crossing , Tyco , as well as slashing of the Dividend at International Flavors And Fragrances after a history of uninterupted dividend increases for 39 years and, more recently, Freddie Mac and Fannie Mae , led to increased shareholder |
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