The Rising Importance of Corporate Governance in Contemporary Business Environment

Essay by legendcicUniversity, Bachelor'sA-, April 2010

download word file, 7 pages 0.0

Question 3

Why has improved corporate governance become an increasingly important topic in recent years? Consider the cost and benefits of different groups (e.g. shareholders, employees, government etc) of changing rules in corporate governance.�


This paper aims to examine why corporate governance has become increasingly important in the contemporary business environment. Additionally, it explores the cost and benefits of applying the principles and rules of corporate governance to an organisation's stakeholders. However, to effectively address this issue, I will firstly define what is meant by corporate governance.

Corporate Governance Defined

The Organisation for Economic Co-operation and Development (April 1999) defines Corporate Governance as "the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation such as the board members, shareholders and other stakeholders….." World Bank President J. Wolfensohn says that Corporate Governance' is about promoting fairness, integrity, transparency and accountability. Vindel L. Kerr, author of Effective Corporate Governance defines it as "the law, regulations and acceptable business practices which together determine the relationship, in a market economy, between corporation owners and corporation managers………..and those who invest resources in the corporation". The term corporate governance has come to mean many things. It describes:

The process by which companies are directed and controlled

The encouragement of companies compliance with codes of good practice and ethics

A field of economics, which studies many issues arising from the separation of ownership and control.

In summary, corporate governance spells out the rules and procedures for making sound ethical, balanced and legal decisions on corporate affairs. It provides clear structures for developing and communicating company's objectives as well as defining strategies for attaining and monitoring the performance of those objectives.

Objectives of Corporate Governance...