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The Literature Of Corporate Governance Principles 2

3738 words - 15 pages

“Whatever goes up must come down.” It is a theory that has been used for many centuries. Observing many businesses, no matter how much they flourished many business eventually face a downfall, leading to failure in businesses. Could it be that businessmen are too confident and end up being careless? Or is it a natural force of gravity? Despite the theory, the real question is, is there a way to manipulate or avoid this theory? Corporate governance is an old phenomenon that was the key to maintaining a businesses’ stability and attract foreign investments by following certain rules. The implementation to this governance was not deemed important to the Cypriot businessmen. In ...view middle of the document...

The purposes of using these principles are not only beneficial to the stability of a business but to actually attract foreign investors. By doing this, companies will flourish and rise to its highest peak. Maria Krambia-Kapardis and Jim Psaros (2006) conducted a research on the implantation of corporate governance principles in a growing economy, using the events that occurred in Cyprus as an example. According to their research, the occurrence of these principles isn’t new and it has been spread and preached worldwide since the mid 1990s. When the word ‘worldwide’ comes into view, it is apparent what the difficulty in implementation of the principles or code would be with respect to the differences in cultural, legal, regulatory and economic infrastructures for each country.
Krambia-Kapardis et al. (2006) found from Prowse (1994) notes that are there are two main corporate governance systems, the Anglo-Saxon model and the institutionally-based model. The Cyprus Code is mostly based on the Anglo-Saxon model, where its code originated from the history and economy of the UK. It is natural that the Cypriots to follow this code since it must adapt to the same principles in order to attract foreign investors. In order to determine the effectiveness of the Anglo-Saxon model many facts were reviewed. Most Cypriot companies have high degree in ownership of bank shareholdings, with timely and reliable information flow in the market. They also have securities market that regulate and ensure that there are no insider trading, however, the major weak point in these securities market is that they are still in their early stages and barely provides opportunities for diversification. In addition, Cyprus’s legal infrastructure are not fully developed and its’ securities against insider trading is not very convincing. (Krambia-Kapardis & Jim Psaros, 2006, pp. 129)
Corporate Governance Principles: The Code
Following the codes is a major necessity in order for a business to prosper and present a high sense of reliability and confidence of the company. Krambia-Kapardis et al. (2006) stated the most common reviewed codes included four sections: the Principles of the Code, the director’s remuneration, the accountability of the audit, and the relations with shareholding. (Krambia-Kapardis & Jim Psaros, 2006, pp. 130)
Following the code is like having a governor governing his country while obeying a set of laws. Every company should set an effective board of directors that will help govern a company. To determine an effective board involves meeting at least 6 times a year, provide unbiased judgment, be up to date with the new flow of information in order to make correct decisions, and ensure smooth transfer of power in the higher echelons of the company. Honesty is a must in order to win the trust with each committee. The board must reveal its remuneration policy, reveal the directors’ remuneration, state the continuation of the consistency, must review annually...

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