The Corporate Governance - The Burdens

Prologue

The word Corporate Governance has became a "Buzzword" these days because of two factors. The first is that after the collapse of the soviet union and the end of the cold war in 1990,it has became the conventional wisdom all over the world that market dynamics must prevail in economic matters. The concept of government controlling the commanding heights of the economy has been given up. This, in turn, has made the market the most decisive factor in settling the economic issues.

Corporate Governance

The Corporate Governance is a set of process, customs, policies, laws and institutions affecting the way a corporation is directed, administered or controlled. Corporate governance also includes the relationships among the many players involved (the stakeholders) and the goals for which the corporation is governed. The principal players are the Shareholders, management and the board of directors. Other Stakeholders include employees, suppliers, customers, banks and other regulators, the environment and the community at large.

The Corporate Governance is a multi-faceted subject. An important theme of corporate governance deals with issues of accountability and fiduciary duty, essentially advocating the implementation of guidelines and mechanisms to ensure good behavior and protect shareholders. Another key focus is the economic efficiency view; through which the corporate governance system should aim in optimize economic results, with a strong emphasis on shareholder welfare. There are yet other sides to the corporate governance subjects, such as the stakeholder view, which calls for more attention and accountability to players other than the shareholders. (Example: The employees or the Environment)

The fundamental causes for the corporate burdens are more complex. Accounting, or, more accurately, the misuse of accounting, was not the main problem. Rather the uncontrolled pursuit of flawed strategies, coupled with greed on the part of many, were the real reasons for the downfall of household names and previous stock market favorites.

The Strategic Failures

The companies often fail to understand the relevant business drivers when they expand into new products or geographical markets, leading to poor strategic decisions. The board of directors did not understand how the derivatives market worked, and therefore did not comprehend the risks associated with it. Often a lack of adequate due diligence, whether building a new plant or making an acquisition, exacerbates problems.

Over Expansion Driven by Greed

The companies are frustrated by their inability to grow organically sufficiently quickly, turn to acquisitions. Despite many empirical academic studies showing that less than half of all acquisitions deliver the sought-after or promised returns, this tendency shows little sign of abating.