07-06-2008, 12:12 AM
07-06-2008, 07:43 AM
In my opinion the sole reason behind Corporate Governance and enactment of different codes in different jurisdictions is to save the wealth of Shareholders(i.e. Investors) from abuse, In other words Corporate Governance seeks to serve Capitalists. Note this is solely my opinion.
Modern Organisations as seen by agency theory comprise of various interest groups like Shareholders, Employees, Directors and other stakeholders. Each group has its own interests like Shareholders want to increase their wealth, Directors are concerned with the level of their remuneration and Employees are concerned with their pay raises. Now, Consider a scenario where there is no Corporate Governance(i.e. no remuneration, nomination and audit committees exist), as directors are always concerned with the level of their remuneration in the non existence of Remuneration Committee(which often consists of Non Executive Directors) the directors will try to maximise their wealth by increasing their remuneration which in turn decreases the overall wealth of shareholders(Owners). If in the above scenario a remuneration committee of Non Executive directors exists then it will not be easy for Executive directors to raise their benefits and salaries.
Another example on the usefulness of Corporate Governance is that some codes like Combined Code of the UK and Sarbanes Oxley of USA states that the position of Chairman and CEO(Chief Executive Officer) should be held by different people. Chairman is a person who conducts the business of the board and CEO is responsible for the running of a company, CEO reports to the chairman on the running of the company and he is accountable to the board. Consider if there is no Corporate Governance then it will be easy for a person to held both seats(i.e. Chairman and CEO is the same person) then how a board(whose leader is chairman[who is also a CEO]) will assess the true performance of CEO(who is also a Chairman) who is responsible for the running of a company.
Modern Organisations as seen by agency theory comprise of various interest groups like Shareholders, Employees, Directors and other stakeholders. Each group has its own interests like Shareholders want to increase their wealth, Directors are concerned with the level of their remuneration and Employees are concerned with their pay raises. Now, Consider a scenario where there is no Corporate Governance(i.e. no remuneration, nomination and audit committees exist), as directors are always concerned with the level of their remuneration in the non existence of Remuneration Committee(which often consists of Non Executive Directors) the directors will try to maximise their wealth by increasing their remuneration which in turn decreases the overall wealth of shareholders(Owners). If in the above scenario a remuneration committee of Non Executive directors exists then it will not be easy for Executive directors to raise their benefits and salaries.
Another example on the usefulness of Corporate Governance is that some codes like Combined Code of the UK and Sarbanes Oxley of USA states that the position of Chairman and CEO(Chief Executive Officer) should be held by different people. Chairman is a person who conducts the business of the board and CEO is responsible for the running of a company, CEO reports to the chairman on the running of the company and he is accountable to the board. Consider if there is no Corporate Governance then it will be easy for a person to held both seats(i.e. Chairman and CEO is the same person) then how a board(whose leader is chairman[who is also a CEO]) will assess the true performance of CEO(who is also a Chairman) who is responsible for the running of a company.
07-08-2008, 07:22 PM
Hope you'll find this link helpful
http//www.accountancy.com.pk/forum/topic.asp?topic_id=1476
http//www.accountancy.com.pk/forum/topic.asp?topic_id=1476
07-09-2008, 12:46 AM
Thanks to both of the Seniors