CORPORATE GOVERNANCE

Main and critical corporate governance issues

Main and critical corporate governance issues

Introduction

The current financial crisis had an adverse effect on organizations and their corporate governance. It is not necessary to give the details of the financial crisis and the impact of the crisis on the organizations in all over the world. The importance of corporate governance in financial institutions cannot be neglected. The impact of corporate scandals on the global economy is the most important element in the corporate governance. The term corporate governance basically refers to the actions taken against the problems and a collective mechanism about the corporate issue by the board of directors and shareholders. Sir Adrian Cadbury, a big name in this field, defines the term corporate governance as it is aimed to maintain a balance between the social and economical goals; he also argued that corporate governance makes a governance framework which ensures the efficient use of resources.

The role of the board of directors plays a vital role in corporate governance; their role has more than just to maximize the value of shareholders. Mariano Browne argues that the role of the board of directors is not just to keep an eye on the management but also to ensure that the proper checks and balances are in place and are according to the hierarchical level of organization. The board is also responsible to review the recommendation put forward by the management and during the review they must also try to calculate the risk associated with the recommendations made by the management and at last the final authority to set the parameters for the organization. In many countries of the world, legislations are drafted to ensure that the directors of the company are ultimately responsible for their actions. For example now all the public limited companies are required to appoint their CEOs and CFOs to clarify their actions (Kirkpatrick, 2009, pp.3-9).

Relationship between financial crisis and corporate governance

In developing countries the capital outflows have increased dramatically, this exponential increase in the capital outflows of developing countries is responsible for growth in such countries. The current financial globalization allows many countries to finance profitable projects of the developing countries if any. Steve Hanke blamed the lack of transparency by the central banks of the developing countries for the occurrence of sudden financial crisis. He argued that the unavailability of the financial statements on a timely basis is one of the reasons of the financial crisis and the central banks are responsible to ensure the timely availability of the financial statements. Avinash Persaud considers corporate governance as a good thing until it ensures the prevention of the financial crisis. The basis of the argument mad by the Persaud was his belief about the existence of bubbles in the economy, he argues that it cannot be predicted that whether a bubble in an economy is exists or not until the bubble bursts in economy. Therefore he suggested that organizations can rely on the simple rules rather to excessively rely on ...