The third report on corporate governance in South Africa came into being in 2009, because of the new Company Act of 2008. This report, known as King III was put together by the King committee due to the importance of putting financial results into perspective for ongoing businesses. This essay summarises and explains corporate governance and integrates King III for an easier understanding.
Corporate governance refers to systems by which organisations are directed and controlled, whether private, public or not for profit (Media, 2013, p. 68). There are several drivers of governance such as increasing globalisation and internationalisation, uniformity of treatment between domestic and foreign investors, financial reporting and high profile corporate scandals.
According to King III, there are four values of good governance that organisations should make clear in their ethics code of conduct (Specialists, 2012):
• Responsibility
• Accountability
• Fairness
• Transparency
Three difference perspectives on governance exist (Media, 2013, pp. 71-72):
• The Agency Theory- managements act in an agency capacity, service their own interests instead of maximising shareholders’ wealth.
• The Stewardship Theory- managers will act as responsible stewards of assets they control. This theory is the alternative view to the Agency theory as certain mechanisms are used to reduce agency loss.
• The Stakeholder Theory- this theory addresses morals and values in managing businesses, stating management has a duty of care, not just in creating value for shareholders.
Most corporate governance codes are set on principles, based on a number of reports that firms disclose (Media, 2013, p. 72):
• Aiding operative management by achieving targets
• To reduce r...
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...ation can be obtained from stakeholders on external events or market conditions and firms are advised by King to build and maintain stakeholder trust using transparent communication (Specialists, Chapter 8 Stakeholder Relationships, 2012) In order to avoid conflict and settle disputes, King III introduces a new principle called Alternate Dispute Resolution (Young, 2009, p. 10), an alternative to formal legal proceedings, whereby parties are mediated and attendance is compulsory. The corporate governance framework of a company should also license performance-enhancing mechanisms which help inspire employees such as representation on the board of directors or profit-sharing provisions for creditors (Media, 2013, p. 101).
In other words, corporate governance involves building, monitoring and sustaining all aspects of an organisation, internal as well as external.
The company should employ the stakeholder theory as opposed to the agency theory. Each member associated with Wal-Mart will be treated fairly and honestly. In incorporating the deontology perspective as opposed to the Utilitarian viewpoint, the company will show its desire to right previous wrongs.
This paper will have a detailed discussion on the shareholder theory of Milton Friedman and the stakeholder theory of Edward Freeman. Friedman argued that “neo-classical economic theory suggests that the purpose of the organisations is to make profits in their accountability to themselves and their shareholders and that only by doing so can business contribute to wealth for itself and society at large”. On the other hand, the theory of stakeholder suggests that the managers of an organisation do not only have the duty towards the firm’s shareholders; rather towards the individuals and constituencies who contribute to the company’s wealth, capacity and activities. These individuals or constituencies can be the shareholders, employees, customers, local community and the suppliers (Freeman 1984 pp. 409–421).
Corporate governance implies governing a company/organization by a set of rules, principles, systems and processes. It guides the company about how to achieve its vision in a way that benefits the company and provides long-term benefits to its stakeholders. In the corporate business context, stake-holders comprise board of directors, management, employees and with the rising awareness about Corporate Social Responsibility; it includes shareholders and society as well. The principles which...
Agency theory addresses three types of problems that could exist from the separation of ownership and management which might consequently affect firm value later. They are the effort problem, the assets’ use problem and different risk preferences problem.
Bibliography: Turnbull, S. (1997). Corporate governance: its scope, concerns and theories. Corporate Governance: An International Review, 5 (4), pp. 180--205.
There are also 5 golden rules that can be adopted for a best corporate governance practice which include Ethics, Align business goals, Strategic management, Organization & reporting.
Securities Commision Malaysia. (2014). General Article: Corporate Governance. Retrieved March 26, 2014, from Securities Commision Malaysia: http://www.sc.com.my/corporate-governance/
Nottingham Trent University. (2013). Lecture 1 - An Introduction to Corporate Governance. Available: https://now.ntu.ac.uk/d2l/le/content/248250/viewContent/1053845/View. Last accessed 16th Dec 2013.
A consequences of focusing on organization or company’s stakeholder is that the shareholder value itself can be enhanced and improved when a wider stakeholder group-such as employees, provider or credit, customers, suppliers government and the local community is taken into account (Mallin, 2011). This theory also related to the organization management and business ethics that uphold moral and values in managing a company as it will covers the benefits to the society and other external parties as a whole rather than just for the internal parties.
1. Corporate Law for Ontario Business (2012). Farah Jamal Karmali 2. Business Dictionary (2010). http://www.businessdictionary.com/definition/separate-legal-entity.html
Today in the present world, most countries have the core object of governance in the “public good provisioning ” leitmotif. According to the main principles ; accountability, participation and transparency, from the governance ecology interaction between the State, Civil Society and Market –place, within the global-village environment, (Higgot and Ougaard 2002; Stiglitz 2003; Woods 2006) “Governance Deteriorate the Economical Progress of the Developing Countries”(Box 15.4 Kaufmann, Kray, and Mastruzzi, 2008 p 291 Governance Matter Vll: some leading findings). In my opinion governance on itself without parametric recognition is doomed to fail, instead of reflecting to new mechanisms of responsibility to steer and guide the social and economical issues, which I will try to clarify in the upcoming body breakdown. Governance is supported as structure through institutions, as process through instruments and as agenda through elements of good governance, generating the capacity to improve significant development and positive impact of economic growth and to cut back destitution. Despite of the fact that developing countries can come in line with the quality of governance by accepting it as a crucial determinant of developmental performance, it didn’t came into effect. The underlying fact of weak and poor governance was identified as a result, for not effectuating the measureme...
When using performance management to improve an organisation’s productivity you need to first decide who is the focus of the organisation’s long term goals, are they focusing on Shareholders or Stakeholders. The Shareholder approach focuses on the profit to the shareholders, no other factors need to be considered aside from the bottom line profits. The Stakeholder approach is a well-rounded, balanced approach to management, considering more than just how much money the organisation makes.
The office of the Director of Corporate Enforcement (ODCE, 2015), Ireland defines Corporate Governance as “the system, principles and process by which organisations are directed and controlled. The principles underlying corporate governance are based on conducting the business with integrity and fairness, being transparent with regard to all transactions, making all the necessary disclosures and decisions and complying with all the laws of the land”. It is the system for protecting and advancing the shareholder’s interest by setting strategic direction for the firm and achieving them by electing and monitoring the capable management (Solomon, 2010). It is the process of protecting the stakes of various parties that have their interest attached with a company (Fernando, 2009). Corporate governance is the procedure through which the management of the company is achieving the goals of various stake holders (Becht, Macro, Patrick and Alisa,
...can be an arbiter of business responsibility to society through the application of tax incentives or tax credits. In good corporate governance, the management should be able to meet their social responsibilities, these include making sure that their products are not hazardous to people and to the environment, sharing their profits for the good of the community as a natural person or human being would do, donating to social causes, organizing activities to benefit the community.
Corporate governance is the set of guidelines that determines the control and organization of a particular company. The company’s board of directors is in charge of approving and reviewing changes to this set of formally established guidelines. Companies have to keep in mind the interests of multiple stakeholders, parties who have an interest in the company. Some of these stakeholders include customers, shareholders, management, and suppliers. Corporate governance’s focus is concentrated on the rights and obligations of three stakeholder groups in particular: the board of directors, management, and shareholders. Corporate governance determines how power is split between these three stakeholders. A company’s board of directors is the main stakeholder that influences the corporate governance of a company (Corporate Governance).