The Importance of Corporate Governance in Organizations
The importance of corporate governance in organizations
With the recent financial crisis, companies’ defaults and crushes, the importance of corporate governance has risen significantly. Corporate scandals that have impacted companies all over the world have led to the re-examination of the role of corporate governance in their day to day operations.
The Organization of Economic Cooperation and Development (OECD, April 1999) defines corporate governance as follows: "Corporate governance is the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs.” (Hebbie A., Ramaswamy V., 2005)
Some corporate governance problems, as for example CEO’s almightiness, Board of Director competencies, shareholders interests, etc, become important only when some organization gets into trouble. In periods of glory and prosperity, rarely anyone think about these issues.
“To be sure, a CEO can maintain control over corporate governance only as long as companies are not demonstrably in difficulty” (Greenspan 2002). When companies run into trouble, existing shareholders and stakeholders will usually search for the ways to displace the board of directors and the CEO. This process raises many questions and can create hostility among participants.
World’s economy has grown and changed a lot. Business units have become larger, ownership more dispersed, opportunities wider. Few shareholders have sufficient stakes to be able to influence the choice of CEO or board of directors. They neither have sufficient knowledge nor will to do so. “The vast majority of corporate share ownership is for investment, not to achieve operating control of a company.” (Greenspan 2002)
Thus, CEO remains the
With the recent financial crisis, companies’ defaults and crushes, the importance of corporate governance has risen significantly. Corporate scandals that have impacted companies all over the world have led to the re-examination of the role of corporate governance in their day to day operations.
The Organization of Economic Cooperation and Development (OECD, April 1999) defines corporate governance as follows: "Corporate governance is the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs.” (Hebbie A., Ramaswamy V., 2005)
Some corporate governance problems, as for example CEO’s almightiness, Board of Director competencies, shareholders interests, etc, become important only when some organization gets into trouble. In periods of glory and prosperity, rarely anyone think about these issues.
“To be sure, a CEO can maintain control over corporate governance only as long as companies are not demonstrably in difficulty” (Greenspan 2002). When companies run into trouble, existing shareholders and stakeholders will usually search for the ways to displace the board of directors and the CEO. This process raises many questions and can create hostility among participants.
World’s economy has grown and changed a lot. Business units have become larger, ownership more dispersed, opportunities wider. Few shareholders have sufficient stakes to be able to influence the choice of CEO or board of directors. They neither have sufficient knowledge nor will to do so. “The vast majority of corporate share ownership is for investment, not to achieve operating control of a company.” (Greenspan 2002)
Thus, CEO remains the