Relevance of Corporate Governance

In: Business and Management

Submitted By robertmasambu
Words 1845
Pages 8







OECD: Organization for Economic Co-operation and Development


Corporate governance has reached centre-stage in the global agenda. The principles and codes evolved in several countries have furthered the cause of efficiency, transparency and equity particularly in the interest of the shareholders. Sustainable shareholder value has become the mantra for corporate immortality translating eventually into welfare of the society. Corporate governance is based on the relationship between agents and principals (agency theory). Agency theory explains how best the relationship between agents and principals can be tapped for purposes of governing a corporation to realize its goals. The owners of capital (shareholders) are the principals while the agents are the managers. The principals select and put in place both governors (directors) and auditors and ensure effective governance system is implemented whereas the managers are responsible for the day to day operations. Therefore corporate governance involves the way in which the boards oversee the running of a company by its managers and how board members are in turn accountable to shareholders and the company.

Corporate governance is a set of rules that define the relationship between stakeholders, management, and board of directors of a company and influence how that company is operating. At its most basic level, corporate governance deals with issues that result from the separation of…...

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