Capstone Assignment: Introduction to Corporate Governance

Introduction to Corporate Governance

Corporate Governance

Corporate governance refers to “the policies and procedures that determine the relationship between the company's management, board of directors and its stakeholders. Such policies have an influence on the operations and everyday functioning of the company” (Denis, et. al, 2003, pp. 36).

Corporate governance tends to enhance the ability of the management to work efficiently (Skau, 1992, pp. 200). It induces a shared system of leadership used by the executives and managers of a company. It provides a clear path to the organizational hierarchy and aids in the execution of decisions. With proper implementation of Corporate Governance codes, the progress and revenues of the company can be tracked. Paired with effective management and allocation of resources; it allows companies to achieve their desired goals.

Corporate Governance Codes in Australia

The Corporate governance frameworks and practices allow a better assessment of costs in the global market. In order for Australian companies to prosper, they should induce potential investors to invest at home in Australia as well as their operations overseas. An analysis of the past decade reveals that incorporation of such governance policies after the financial troubles faced by Harris Scarfe, One. Tel and Insurance giant HIH has added to financial strength and stability of Australian companies. But, such policies need to be reviewed on a regular basis due to the changing environment of today's economy. It would also ensure transparency of the Australian based company's financial situations and also induce improved standards of organizational practices (Gorgen, 2012, pp. 104).

However, the Australian system has regularly been termed as an 'outsider system of control and ownership by critics. Many experts believe that it is a replica of the system used in the United States and United Kingdom (Mark, 2000, pp. 604). Markets in these countries are regulated by dispersed shareholdings- and the contact between the company and the shareholder is kept at minimal.

Many regard the current corporate governance system as effective. But, in the recent past many Australian companies have dispersed their shareholdings. All in all, Australian market relies on the following prime institutions i.e. corporate governance laws, Australian stock exchange, securities regulator and a takeover panel. Due to a uniform law system; the current set up closely resembles that of United Kingdom's.

The Market for Corporate Control

In the existing system of market, takeovers and mergers are seen as an effective management strategy. However, the market of Australian listed companies should provide some insight into the various governance principles. Similarly, a low rate of takeover or complete absence is indicative of a lack of interest on part of the investors. We can certainly assess that currently there are no evident market restraints and the company leaderships are focused at arousing the investor's interest (Stapeldon, 2005, pp. 255).

Corporate Governance and Recent Australian Market Trends

Collapse of HIH Insurance

According to Bowen (2008), a close analysis of the past decade in Australian economy reveals that many major companies faced financial troubles and could not effectively manage the market ...