4 - The Meaning of Governance Flashcards
what is corporate governance
the system by which organisations are directed and controlled
what is the purpose of corporate governance
facilitate effective, entrepreneurial and prudent management that can deliver the long term success of company
what are the three aspects of an organisation
- collective goals = max of shareholder wealth/value for money
- social arrangements = allowing working together
- controlled performance = systems to ensure collective goals
what are the aims of corporate governance
- ensuring companies well run in interests of shareholders
- reduction in risk
- setting best practice guidelines
- providing ethical and effective management framework
- willingness to follow the spirit
- accountability for management
examples of poor governance in companies
- dominant board members
- weak boards, lack of knowledge
- lack of stakeholder interaction
- lack of internal controls
- corporate greed and stock market pressures
- poor financial reporting
- lack of interest from investors
what aspects do corporate governance codes cover in general
- role of directors/boards
- accuracy of financial statements
- protecting shareholders
- rules of stock exchanges overlap
why do laws need to be supplemented with corporate governance
- legal rules aren’t watertight
- investors concerned with return earned, not how its run
- shareholders don’t have power to take on directors of business
what is stewardship theory
views management as its stewards tasked with managing assets in line with wishes of owners
requires investors to take active interest in affairs of organisation
what is a fiduciary relationship
relationship based on ‘good faith’ between parties so stewards act in best interest of owners rather than self interest
what is stakeholder theory
more organic view of the organisation going beyond stewardship and that management have a commitment to the stakeholder community too
what is agency theory
views managers as servicing their own self interest giving rise to the agency problem
what is the resource dependency theory
study of how external resources of organisations affect their behaviour
what is the logic of the resource dependency theory based on
- organisations depend on resources
- resources come from external sources
- environment contains other organisations
- some necessary resources held externally
- resources are a source of power
- interdependency can exist
what is OECD
Organisation for Economic Co-operation and Development
published principles in 1999
what are the 6 principles of OECD
- ensuring basis for effective corporate governance framework
- rights of shareholders and key ownership functions
- equitable treatment of shareholders
- role of stakeholders in corporate governance
- disclosure and transparency
- responsibility of the board
