Introduction The increased incidence of the economic crisis in affect to all the world economy, especially the leading developed country, United States and Britain in1980’s (Weir & Laing, 2001) and has become to importance of corporate governance and also in developing countries (Rasiah, 1999), The economic loss and damage of investment of investors are the result of inefficiency of corporate governance, which caused of lack of the inspection and monitoring the actions of management and directors should protect the interests of the shareholder from inappropriate behavior that is include dishonest, misconduct or even distort the number in financial statements to mislead the stakeholders make wrong decision affect to loss a lot of money (Mohammad Abdullah, 2008). Corporate governance is created because of the failure operation of the company between the owner and management team known as Agency Problem is a contract between the owner and the executive cannot eliminate the problem and this cause lead to adjust the rules. Definition of corporate governance has variety of meaning. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.” (OECD, 2004). According to Magdi and Naradereh(2002) argues that corporate governance focus on business will continue to be well by investors get fairly return. Moreover, The definition by Tricker, (1994) focuses on the board room and adds owners and others interested on the scope in the affairs of the company, including creditor, debt financiers, analysis, auditors and regulate regulators, indicated the audience for company financial report, consistent with both Trickers... ... middle of paper ... ...ation. For the aspects of governance according to principle agent theory, the results of it are effectual and reliable in dealing with the issues of corporate governance. Conclusion In conclusion, this paper has reviewed to Cadbury report, Geenbury report, PAT theory and also analyze this theory with the case study of the company in UK and it is clearly that corporate governance is effective transparent performance with the highly management in order to increase income and shareholders. The companies can increase trust from shareholders and investors by using the accountability and transparency component of corporate governance. The company has to run both smartly and honestly for the guaranty's stakeholders. Corporate governance would enhance stakeholders’ confidence. Moreover, for this reason, it can be supported the business's sustainability in the long term.
Bibliography: Turnbull, S. (1997). Corporate governance: its scope, concerns and theories. Corporate Governance: An International Review, 5 (4), pp. 180--205.
Principal agent problem allows us to see who has the power in certain circumstances, in which there is an individual that is in a position of power in a certain branch of the government. With the principal agent problem, we can see that, people in positions of power can use the benefits of such positions to pursue their own agendas, and use the power of the government to benefit themselves rather than benefitting the society.
Introductory, agency theory discusses the relationship in which one party, the principal, delegates work to another, the agent (Eisenhardt, 1989). The core idea behind agency theory is to through contracting align the interest of shareholders (principal) with that of the managers (agents) in order to maximize shareholders value. Thus, the decision-making is being separated from the party who bears the risk; therefore, problems can arise. Firstly, the principal cannot verify whether the agent has behaved appropriately (the agent and principal have partly di...
In contrast , the shareholder theory organisations or organisation's decision-makers only have the responsibility to their shareholders by increasing the organisation profits and should only make the decisions to increase as much as possib...
This separation between ownership and managerial control in this instance can be problematic as the principal and the agents have different interests and goals. In a large publicly traded corporation such as NOL/APL, shareholders (principals) lack direct control when the CEOs (agents) make decisions t...
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...
Solomon, J (2013). Corporate Governance and Accountability. 4th ed. Sussex: John Wiley & Sons Ltd. p.7, p9, p10, p15, p58, p60, p253.
Agency Theory or Principal Agent Theory is the relationship that involved the contractual link between the shareholders (the principals) that provide capital to the company and the management (agent) who runs the company. The principals will engage the agent to carry out some services on their behalf and would normally delegate some decision-making authority to the agents. However, as the number of shareholders and the complexity of operations grew, the agent, who had the expertise and essential knowledge to operate the business and company tend to increasingly gained effective control and put them in a position where they were prone to pursue their own interests instead of shareholder’s interest.
The end of 2001 and the start of 2002 saw the end of a period of magnified share prices and booming businesses. All speculations of misrepresentation came to light and those firms which once seem unconquerable were now filing for bankruptcy. Within this essay, I shall discuss the corporate governance mechanisms and failures which led to the Enron scandal resulting in global corporate governance reforms being encouraged.
Agency theory means that the agent who are the directors of the company is under contract to act on best interest of the principals who are the shareholders. Agency problem arises due to the fact that there is a breach of trust where the directors are acting on their own self interest instead of shareholders’. In regards to the problems, there is also an information of asymmetry, which would described as the agents would have more information than the principals.
Based on this article, Malaysia involved in the economic crisis in the end of 1997. The Malaysian economic downturn exposed the consequences of poor corporate governance and prompted the formation of a high level Finance Committee on Corporate Governance (FCCG). The main focus of FCCG is to review and reform corporate governance in Malaysia comprehensively. In order to make a reformation, FCCG has played their role by sets out the principles of good corporate governance for Malaysia as a guideline and also proposes the code of best practice for companies. All of the recommendations of these principles are to strengthen laws, enhance disclosure and transparency, promote effective enforcement and emphasis on training of directors. Malaysian Code emerged from an urgent demand for businesses to exhibit greater transparency and accountability as it is largely modeled after the UK Codes. In UK, listed company under London Stock Exchange must disclose in their annual report the extent of compliance. The Hampel report’s main objective is to produce a set of general principles that allow flexibility in interpretation. Then the UK Code Combined derived from the Hampel report. So, there are similarity that we can see here when all companies in Bursa Malaysia are al...
The Asian Financial Crisis which exposed the corporate governance weaknesses was a wake-up call for all the policymakers, standard setters as well as the companies (OECD, 2014). The parties that involved and affected from the crisis started to realize the importance of having strong corporate governance practices in their countries. Consequently, the Asian economies along with the OECD established the Asian Roundtable on Corporate Governance in 1999, in order to support the enhancement of corporate governance rules and practices (OECD, 2014).
The Agency theory explains the relationship between shareholders and company executives and suggests that activities of firms are governed by the role of contracts to facilitate voluntary exchange. According to the agency theory conflicts exist when managers have selfish motives and do not always act in the best interest of the firm, but to increase their own wealth at the expense of other shareholders. The reason for this conflict is that shareholders want to maximize the return of their inves...
In other words, directors need to act in good faith in the best interest of the company. However, once shareholders delegated their power to directors there was another issues, whether directors should act in the best interests of shareholders only, or focus on the interests of other stakeholders? So, whose interests should be promoted by the directors? Some scholars believe that the focus should be made on stakeholders, as they are under the risk of the firms` actions; they contribute to the company ‘some form of capital, human or financial, something of value, in a firm’. So, corporations should be responsible toward stakeholders. However, stakeholders is a wide range of interests that should be accounted, and when corporation is responsible to everyone it means that they are not responsible to anyone, and this theory can lead to the meaningless of the corporate governance. This happens because company is focused not on the achieving of long-term objectives, but on the customers, employees etc. instead. Notwithstanding, it does not also mean that company should act and be accountable only in respect of shareholders who delegate them the governance of the company. From the point of shareholder primacy, the primary aim of corporations is to focus on the company and be accountable to shareholders, and thus focus ‘on stakeholders only to the extent that this is required by law and by concerns for the firm`s reputation, credibility and image’. So, Enlightened Shareholder Theory stands for the rejection of shareholder primacy (the effect of the shareholder theory can be seen from the Enron crisis where managers were required to increase profit to shareholders and, thus it encouraged managers to make manipulations with accounts of the company) and focus on other stakeholders` interests
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,