CORPORATE GOVERNANCE AND REPORTING

Corporate Governance And Reporting

Corporate Governance And Reporting

Introduction

In its essence, corporate governance refers to the organization of the relationships between shareholders, board of directors, management, and other stakeholders in a corporation. According to the Cadbury Committee, corporate governance is concerned with the processes by which corporations are directed and controlled. Corporate governance especially deals with exercise of authority over the directions of the company, the supervision of actions of top management, the acceptance of accountability, and the compliance with legal and regulatory frameworks in which the company operates. The term corporate governance is not easy to define, as it can be used differently in different contexts. Several academic disciplines that study corporate governance bring their own distinctive meaning of the term. For example, economic theory emphasizes the mechanisms used by financial suppliers of corporations to assure themselves of getting returns on their investment. The study of law examines the power and duties of various corporate governance actors and discusses the legal instruments by which property rights are organized. The authors from the management and business administration focus on internal governance mechanisms that enhance decision making and improve performance.

Discussion

Definitions of corporate governance have also changed over time to reflect the shift of the purpose and roles of corporations in modern society. In the 1960s, the main purpose of corporate governance was control of business power and authority. Therefore, corporate governance was dominated by investor predisposed definitions supported by agency theory. The corporate discussion was primarily about the control of managerial self-interest and a board of directors' monitoring role. More recent definitions adopt a much broader view, contemplating the whole complexity of corporate life. Margaret M. Blair offers one such definition, according to which corporate governance refers to the whole set of legal, cultural, and institutional arrangements that determine what publicly traded corporations can do, who controls them, how that control is exercised, and how the risks and returns from the activities they undertake are located.

National Governance Systems

Although the conceptualization of national differences in corporate governance is often debated, most comparisons categorize countries into three groups: AngloAmerican, continental European, and Japanese-East Asian models. The Anglo-American model is characterized in terms of dispersed ownership and corporate financing through equity or short-term debt markets and active markets for corporate control. It is shareholder oriented and perceives the firm as the private property of its owners. This model is prevalent in the United States and the United Kingdom. The continental European model is stylized by concentrated ownership (usually by large blockholders, such as banks and families), long-term debt finance, and underdeveloped market for corporate control. Although it primarily emphasizes the interests of shareholders, it also takes into account the interests of employees. This model is widely adopted in Germany and to a smaller extent in Continental Europe. Japan and East Asian countries follow a model that emphasizes development of longterm relationships among various stakeholders—the main bank, major suppliers, distributors, owners, and employees. In this pluralist framework, employees' interests take ...