2.0 Agency Theory and Corporate Governance Corporate Governance is a term used to refer to the processes, policies, regulations and customs by which a corporation is directed, administered and controlled. Corporate governance has been an integral part of the business practice since the creation of corporate structure and separation of ownership from control (Aguilera & Jackson, 2010). Corporate governance specifies the responsibilities and rights of various stakeholders in the organization, e.g
structure, the difference of corporate governance among different countries is may be unitary or dual board on the country. In the UK and the USA, a unitary board of directors in the form of board structure, characterized by one single board comprising executive and non-executive directors. (Aguilera, 2003) It is responsible for all aspects of the activities of the corporation. A dual board of directors is including a supervisory board and executive board of management. Nevertheless, there is an accurate
acknowledged fact that the principal-agent theory is generally considered the starting point for any debate on the issue of corporate governance emanating from the classical thesis on The Modem Corporation and Private Property by (Heracleous, 2001). According to this thesis, the fundamental agency problem in modem firms is primarily due to the separation between shareholders and management. Modem firms are seen to suffer from separation of ownership and control and therefore are run by professional managers
upon the profitability of the company. Now on the other hand, if we see upon the responsibilities and duties of CEO, he also has to take into consideration the main segments of the company like tax, finance, risk, policy making, human resource management and public relations. In simple words, the CEO has to move ahead his company in correct direction by handling all segments like a pilot of an airplane. Advantages CFO is expert in his finance field, as he knows how to earn a good profit for the
Definition of the problem In recent years, much attention has been focused on the responsibilities and effectiveness of audit committees within corporate governance in the wake of several high profiles corporate governance failures, such as Polly Peck, BCCI Bank and Maxwell in the UK, WorldCom and Enron in the US, and Parmalat in Italy. The importance of strong corporate governance has assumed a vital role in organizations ever since these highly publicized corporate fiascos. Regulations have been
monitoring board and the independent director concept emanate from the agency cost theory that relates primarily to the manager-shareholder agency problem. Acknowledgement of the majority-minority agency problem in the literature is sparse because academics were not confronted with the issue at all as they were primarily dealing with outsider systems of corporate governance. Emergence of Independent Directors in U.S. Corporate Practice Apart from repeated allusions in theory to the concept of independent
dollars, several things could go wrong even if the best precautions are taken. For instance, issues may arise between those who manage the company (managers) and those who provide capital to the business by buying shares of stock (shareholders). Agency problems can be defined as the inseparable and natural risk of conflict of interest in the case where one party is expected to perform to the best interests of another party. As such is the case of the relationship between company managers and shareholders
Corporate governance is a structural branch through which banks set a range of targets and means by which they monitor the performance. Effective corporate governance encourages the bank to operate safely and use resources efficiently. Corporate governance relates to how the banking business is governed: it consists of a series of relationships between management, board, shareholders and stakeholders. Lenders and other providers of funds are more willing to provide funding when they feel safe on
principal in a business and is expected to work, without any regards for self-interest, towards the best interests of the principal. The agent-principle problem arises when some agents don’t act appropriately in accordance with the principle’s best interest and ultimately result in the inefficient working of the organisation. (Ross Stephan 1973). Suitable agency co-relation, in this case between me and the trainee would have been really beneficial as I could have let her know what she was doing was wrong
ENRON. According to the economist (2002), this scandal pinned the blame for the problems of Enron on the members of the board of Directors, the senior managers of Enron, the auditors of Enron, the bankers of Enron and the Bush administration among other players. The Economist (2002) further stated that “the only missing ingredient on the scandal so far is sex”. The Enron showed the need to reform the accounting and Corporate Governance environment in the USA. It also highlighted loopholes of leadership