The framework which presents the most appropriate explicit framework for corporate governance
QUESTION 1
The system of principles and processes which companies are governed by is known as corporate governance. Acting as management or control system, it motives to align the company with its set objectives and goals through a path that adds value to the company whilst keeping the best interests of stakeholders for the long term. (Kaplan Financial Knowledge Bank 2014) While generally carried out by most businesses, the practiced procedure or extent of corporate governance varies from company to company depending on the theoretical framework approached. Examples of frameworks typically applied to companies include the agency theory, transaction cost theory and stakeholder theory. Each framework reflects its own route as to how a company should operate hence; the difference in how corporate governance is interpreted when used to treat respective framework issues arising within entities. To conclude on a single theory which presents the most appropriate and explicit framework for corporate governance, the paper will thoughtfully evaluate and analyse each of the frameworks. Simply put, the agency theory reflects on the relationship which exists between the principal and his hired representative- the agent. In this relation, the latter is said to bear fiduciary obligation to prioritise the best interests of the former- usually to maximise firm value on their behest- before own personal objectives thus; establishing that the interests of these parties side from different corners. Traditionally, interests united as company ownership and management came from the same individuals. Due to the costliness of business expansion, companies have little to no choice but to seek additional funding from wider ranges of investors thus; dispersing ownership and separating “principal-agent” interests. (Abugu 2012)
The agency framework governs that agents are to act in the best interest of their owners which includes practising transparency in information disclosures to
The system of principles and processes which companies are governed by is known as corporate governance. Acting as management or control system, it motives to align the company with its set objectives and goals through a path that adds value to the company whilst keeping the best interests of stakeholders for the long term. (Kaplan Financial Knowledge Bank 2014) While generally carried out by most businesses, the practiced procedure or extent of corporate governance varies from company to company depending on the theoretical framework approached. Examples of frameworks typically applied to companies include the agency theory, transaction cost theory and stakeholder theory. Each framework reflects its own route as to how a company should operate hence; the difference in how corporate governance is interpreted when used to treat respective framework issues arising within entities. To conclude on a single theory which presents the most appropriate and explicit framework for corporate governance, the paper will thoughtfully evaluate and analyse each of the frameworks. Simply put, the agency theory reflects on the relationship which exists between the principal and his hired representative- the agent. In this relation, the latter is said to bear fiduciary obligation to prioritise the best interests of the former- usually to maximise firm value on their behest- before own personal objectives thus; establishing that the interests of these parties side from different corners. Traditionally, interests united as company ownership and management came from the same individuals. Due to the costliness of business expansion, companies have little to no choice but to seek additional funding from wider ranges of investors thus; dispersing ownership and separating “principal-agent” interests. (Abugu 2012)
The agency framework governs that agents are to act in the best interest of their owners which includes practising transparency in information disclosures to