Corporate Governance

Importance of Responsible Corporate Governance

Importance of Responsible Corporate Governance

Introduction

Recently, a great deal of media's attention is given to “the corporate social governance”. However, this phenomenon is relatively new. It refers a system that defines an organization's direction and control. It includes the decision making of corporate affairs and the allocation of rights and responsibilities of the stakeholders. It also takes into account the relationship with a wide range of firm stakeholders, including the internal and the external stake holders of the organization (Ayuso & Argandona, 2007, p. 3).

Discussion

Importance of responsible corporate governance

The combinations of processes, moral principles, cultural policies which have an impact on the operations of the organizations are called the corporate governance. It focuses on the association between a firm's stakeholders and the goals which to be accomplished. Corporate governance includes the internal stakeholders (employees, directors and executives) and the outside stakeholders (customers, partners, etc.). The actions of these stakeholders have a direct impact on the functions of the organizations and the way organizations run. Responsible corporate governance helps to reduce the principal-agent problem by focusing on the nature and responsibilities of the organization's internal stakeholders. Other importance of corporate governance arises as it emphasis on the efficiency of the economy and on the welfare of all stakeholders.

Examples:

Austral Coke and project Ltd. is an example of bad corporate governance practice. The income tax department investigated the company and found that wrong information about the purchases and sales were found in company's financial accounts. Information of nonexistent firms was found in the records.

Other example can include governance of Enron. Executives of Enron gave wrong information in the company's financial statements in order to raise the value of the stocks. For many years, board of directors failed to detect this inaccurate information. The bad corporate governance resulted in the bankruptcy of the organization.

Regulatory requirements

Effectiveness in legal, regular and routine basis is necessary for effective responsible corporate governance. It should be such in which all the stakeholders can rely on when they go into in their multitude of contractual associations. These legal, regulatory and institutional foundations involve the elements of the practices of business, voluntary promises, self regulatory measures, legislation and regulation. The basis for the outcome of these elements is the economical situation, history and tradition of the country. Therefore, the result will vary in different countries. For the implementation of effective corporate governance, it should include regulatory framework along with the set of policies.

Organization requires finding out the stakeholders who are relevant to them. These stakeholders become important because of the particular industry and environment. Selection of the board of directors should be effective to ensure that equal opportunities are given to each and every group of stakeholders (Ayuso & Argandona, 2007, p. 11).

The regulatory requirements have an impact on the interest of various stakeholders. In many cases, organization will face public as a key stakeholder. In such case, actions of the organizations would compliance with the need of the ...