Corporate Governance Essay

3842 words - 16 pages

1.0 INTRODUCTION

Corporate governance generally refers to the set of mechanisms that influence the decisions made by managers when there is a separation of ownership and control.[1] It therefore refers to the manner in which the power of a corporation is exercised in the stewardship of the corporation’s total portfolio of assets and resources with the objective of maintaining and increasing shareholders value and satisfaction of other stakeholders in the context of its corporate mission.[2] It involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate Governance mainly deals with prevention and mitigation of the conflict ...view middle of the document...

This is because the country needs well-governed and managed business enterprises that can attract investments, create jobs and wealth and remain viable, sustainable and competitive in the global market place. If business enterprises do not prosper, there will be no economic growth; no employment, no taxes paid and invariably the country will not develop.[7]

1.1 Principles of Corporate Governance

There are several principles that have been put forward as best practice in corporate governance.[8] Any structure of corporate governance worth its salt ought to incorporate some if not all of these principles. Such include:

1. Disclosure and transparency

Corporations should be required to spell out and make publicly known the roles and responsibilities of the board directors and management to offer stakeholders with a level of accountability. They should also put into practice procedures to independently authenticate and preserve the integrity of the corporation's financial reporting. Disclosure of material facts concerning the corporation should be judicious and balanced to make sure that all investors have access to patent and factual information.[9]

2. Ensuring the basis for an effective corporate governance framework

The corporate governance framework should promote transparent and efficient markets, be consistent with the rule of law and clearly articulate the division of responsibilities among different supervisory, regulatory and enforcement authorities. Supervisory, regulatory and enforcement authorities should have the authority, integrity and resources to fulfil their duties in a diligent, professional and objective manner.

3. Rights and equitable treatment of shareholders

The corporate governance framework should protect and facilitate the exercise of shareholders’ rights, including minority and foreign shareholders. They can assist shareholders put into effect their rights by openly and effectively communicating information and by encouraging shareholders to take part in general meetings. All shareholders should

have the opportunity to obtain effective redress for violation of their rights.[10]

4. The Role of Stakeholders in Corporate Governance

The corporate governance framework should recognize the rights of stakeholders established by law or through mutual agreements and encourage active co-operation between corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises. The corporate governance framework should also be complemented by an effective, efficient insolvency framework and by effective enforcement of creditor rights.[11]

5. The Responsibilities of the Board

The corporate governance framework should ensure the strategic guidance of the company, the effective monitoring of management by the board, and the board’s accountability to the company and the shareholders. The board needs adequate germane skills and understanding to...

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