Does Corporate Governance Enhance Firm Performance? Essay Example

quite disturbing. Just like it takes many years to become rich overnight, it also takes quite a long time of cover-ups for a firm to get into the spotlight on account of minimized accountability, internal malfeasance, and all other forms of candals, yet these often appear to happen in the very open eyes of the board without their noticing it or so it appears. In such cases the question frequently asked is: where was the board of directors.

Unfortunately, as Andrew Graham quotes Peter Drucker to have noted, “In every single business failure of a large company in the last few decades, the board was the last to realize that things were going wrong. ” What really accounts for this?

Does it have to do with the quality of those appointed to boards or is it part of a conspiracy with the management team within the notion of agency problems? For reasons that appear to suggest director ineptitude, quite a lot of regulations and re-regulations, especially through codes of best practice have been spawned across corporate jurisdictions around the world in order to save firms and investments in them by strengthening the quality of corporate governance.

But that the problem of minimized accountability and all forms of ingenious corporate malfeasance involving managers and directors keep increasing even with all the regulatory safeguards put in place across continental divides suggests that the problems of corporate governance are not what can easily be arrested with regulations. There is need to look deep into the mindset of corporate managers and directors to find out the true problems why man must often allow his weaknesses to overcome actions for

the common good.

If we look around, we can effortlessly take an inventory of corporate directors who are inordinately rich within the dreams of avarice, and they continue to superintend over the very organizations they have consistently fleeced.

The most recent case in the United States is Bernard Madoff who ironically was also Chairman of NASDAQ. These problems have made not a few people to wonder if corporate governance now has a different meaning and purpose from what it is originally meant to be. What is Corporate Governance? The 1992 U.

K Cadbury Committee defines corporate governance as the system by which organizations are directed and controlled. The Federal Reserve Bank of Richmond defines the subject as “..

. the framework by which a company’s board of directors and senior management establishes and pursues objectives while providing effective separation of ownership and control. It includes the establishment and maintenance of independent validation mechanisms within the organization that ensure the reliability of the system of controls used by the board of directors to monitor compliance with the adopted strategies and risk tolerance. But Andrew Graham sees it as the exercise of authority, direction and control of an organization for the purpose of ensuring that it’s (the organization’s) purpose is achieved.

Thus, Good governance is about safeguarding the mission of the organization, establishing a values framework, ensuring that sound management and risk practices are in place, holding those under oversight to account and accounting to the broader public interest.