Corporate Governance is the relationship between the shareholders, directors, and management of a company, as defined by the corporate character, bylaws, formal policies and rule laws. The corporate governance system was designed to help oversee the decisions and best interest of the shareholders. The system should works accordingly: The shareholders elect directors, who in turn hire management to make the daily executive decisions on the owner’s behalf. The company’s board of director’s position is to oversee management and ensure that the shareholders interest is being served.
Corporate governance focus is with promoting enterprise, to improve efficiency, and to address disputes of interest which can force upon burdens on the business. Ensuring that the clearness, and truth in a company’s business can make contribution to improving the enterprise standards and public governance. What created corporate governance is still a question of debate? It is a developing order control system, and one in which little has been rearranged from the outlook of developing and transition economies. From the corporation’s outlook, the developing system’s general agreement is that the purpose of corporate governance is to increase the firm’s value, subject to meeting the corporation’s financial and other legal obligation. They believe that the extensive meaning stresses the need for boards of directors to balance the interest of capital providers with those of stakeholders in order to achieve long term maintained commercial success. While on the other hand, the public believe the purpose of corporate governance is to nature the spirit of the company while ensuring accountability for the exercise of power and special privileges by the firm.
The role of the public policy is to provide firms with the incentives and discipline to minimize the difference between private and social returns, and to protect the interest of stakeholders. Corporate governance has become an issue of worldwide importance. Corporations have a role to play in promoting economic development and social progress therefore they must have the best members on the board to assure good standards. Board members and directors should possess certain characteristics that will allow them to make good decisions for the firm. The appropriate characteristics should be possessed by each candidate of the board before they are elected.
Firms must also consider the ability to obtain an authority position, how an individual accept change of profession, how many outside directorship an individual may be involved in, invest abilities, and how they handle conflict of interest. Boardrooms are changing. Directors can no longer be passive. They must be alert, accountable and active. The board’s performance has come under more scrutiny. Shareholders, members and staff expect more from their boards.
Individual directors of the corporate governance board should possess all of the following characteristics: o Integrity and Accountability Informed Judgmento Financial Literacy Mature Confidence High Performance Passion The board as a whole should possess the following core competencies, with each member contributing knowledge, experience and skills in one or more domains. o Accounting and Finance Business Judgmento Management o Crisis Response Industry Knowledge International Markets Strategy & Vision Companies are becoming more involved with corporate governance and they are following more strict rules and guidelines. One major problem is how board members are being elected. Avoid employees for the company seems to be one way to eliminate poor corporate governance committees. They have to try to keep the chief executive officers from loading the board with friendly directors that are close to them. The most difficult change will be electing board members.
A major limitation of the existing system of selecting outside directors is that it can be controlled by management. Even though these directors may have no other formal ties to the firm, candidates can still be screened to ensure friendliness to the CEO, and who fail the screening test can be prohibited from the nomination. Several firms are focusing on the voting and nominating procedure as one way to improve corporate governance. The new Nasdaq rule is another way they are looking to improve corporate governance in the future. According to this rule corporation have to get there act together and buckle down and abide by the new rule if it is passed. After the new regulations are approved, companies will have two years to make all the appropriate changes or take a chance of getting removed from the NYSE list of stock exchange.
If a letter of reprimand is issued or if removal of stock form the NYSE occur, it will bring a lot of public attention on the companies that are acting according. This attention may give investors a negative reaction on the company and they may slowly start pulling away from the company. This new Nasdaq rule is suppose to make investors and the public aware of what is happening with the company weather its conflict of interest or other corporate abuse. They also believe it will give investors more confidence in the companies that they invest their money in. The new rule should prevent a bad company from showing dishonest behavior. Many agree that there will not really be a change for companies that are doing business correctly already.
All it really will do is show the public who the bad companies are and see them as they are put to justice. The bottom line to the whole scenario is “all honest people are honest people and crooks are crooks.” It has been said that this new rule will only make the bad people work harder to be bad and continue wrongful doings to learn new ways to bet the corporate governance system. Face it the bottom line is if you want something done right you have to do it yourself, but how could one person have some many obligations to meet for a company when they will face problems also. Hopefully along with the new Nasdaq rule and obedience board directors corporate governance will become better with in time.