Free Research Paper On Corporate Governance
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Enterprises always need specific regulations and rules to maintain their core significance in the market. It is more than essential for the companies to comply with the industry standards to stay in the market as a competitive one, and such specifications are known as Corporate Governance (Calder, 2008).
Theoretically, Corporate Governance is the Government based standards which the entities have to comply for their effectiveness and long run execution. Principle Agent Theory is one of the most important and widely used theories that stride specifically under the ambit of Corporate Governance for different specifications (Calder, 2008).
The main purpose of this assignment is to relate Principle Agent Theory with the corporate entities to maintain their political and economic environment and system. Apart from this the role of PAT is referred as a powerful act will also take into account to complete the analysis in a perfect manner. The assignment is divided into different sections which are introduction, analysis and findings and conclusion.
Analysis & Findings
Theoretically, a system that incorporates powerful rules, practices and processes from which an organization will be directed and controlled in a perfect way is known as Corporate Governance. It usually attains with the sheer interest of the shareholders of an enterprise that includes, investors and customers as well.
Corporate Governance has shown its core importance in strengthen the financial and strategic well being of an organization because corporate governance is all about maintaining and complying with the industry standards of shareholders, and in the end of the day, only those organizations can be in a perfect situation who has strong compliance behavior (Calder & Watkins, 2008). If an organization is competent to comply with the industry standards of corporate governance, then it can facilitate and entertain its external and internal shareholders in a more powerful and effective manner which will be eventually become perfect for maintaining their economic system.
Corporate Governance not only improves the financial structure of the company, but it also induce the employees and the management to play their active role and part in the execution of the company, as without their work dedication and devotion, it is not possible for the companies to have powerful effectiveness within their operations.
The standards of Corporate Governance are more towards maintaining a strong tradeoff among the financers or external shareholders of the company, as without shareholders it is very difficult for the organization to maintain the operations of a going concern, because shareholders is known as the actual owner of an organization through their proxy rights and sharing in the company (Colley, 2005).
Increasing the shareholder’s equity and residual claims is one of the most important duties and functionality of an organization; in fact it is the main objective which they want to achieve in their long run. Shareholder’s equity will be increased by taking timely and powerful actions for the sake of the country that includes the decisions related to the financial well being of a company and increases the level of their core operations. All of such decisions are essential for the company in terms of accelerating the pace of their core earnings.
Principle Agent Theory: Implications and Corporate Governance
There are numerous authors who had placed their role in enhancing and strengthen the monetary structure of the companies, and the name of Graam Leach Biliely act of 1999 is one of them. Apart from this act there is a significance and widely used theory for corporate governance behavior with the name of Principle Agent Theory (PAT).
Principle Agent Theory is a theory cum phenomenon of corporate governance in which it is stated that an agent, most of the time (an organization) takes decisions to increase the confidence level of the principle, most of the time (Shareholders) through executing different actions. It means whatever an organization does and wishes to do are purely dependent on their mantra of satisfying the needs of their shareholders in a well organized, perfect and powerful manner (Joshi, 2004).
This theory is specifically and explicitly associated with the companies which have their shares floated in the financial markets, and they are in the mood to gain appreciation from their external shareholders. The corporate governance and industry standards give permission to the external shareholders of a company to take powerful decisions on the behalf of the company and increase the level of communication with the enterprises to prevent any sort of problem with them.
Proxy rights to the shareholders give them the chance to hire and fire a specific management official from the organization, which is not performing their duties with zeal and for the sake of the company (Joshi, 2004)
In terms of Corporate Government, the existence of this particular theory is very specific and significant because it implies the importance of shareholders equity, its execution and its increment for the long term management and efficacy of the company (Joshi, 2004). After the current economic crisis, most of the organizations are now moving towards the management of the shareholders in a fruitful and effective manner, because they have realized that without the stance of managing the shareholders, it is very difficult for the companies to stay competitive in the industry.
PAT is one of the greatest examples of having a strong and perfect tradeoff among the shareholders and for the managerial officials of an organization as well to execute their operations in the marketplace. Big and multinational organizations of the world like Proctor & Gamble (P&G), Unilever and others are continuously in the operative behavior and working to enhance the level of satisfaction among their external shareholders because they have an idea that without their intentions the company cannot reach on the zenith.
Secondly, all of these organizations make the shareholders of the company as a major part of their decision making process through which they contribute their valuable sayings and recommendations to the management in terms of enhancing the perfection within their operations.
One of the basic problems which are associated in the current economic scenario with the organizations is having a transparency in their actions in terms of managing the investment of their shareholders and values their sentiments. Principle Agent Theory has now emerged as an important aspect and theoretical implication that associated with the long run effectiveness of the entities (Joshi, 2004).
Inefficiencies in the management of operations may increase the factor and problems of the cash flows and balance sheet as well; however all of such issues and problems can be overcome by taking powerful actions against the company. Both manufacturing and service oriented organizations are required to comply effectively with the PAT to increase their economic function and further strengthen their economic effectiveness in a best possible manner. This particular aspect is also effective for strengthen the social factors of the society of a country in which the shareholders will always be given extra attention and effectiveness in a definite period of time.
Gramm-Leach-Bliley is a Financial based act which usually associated with the financial institutions and companies which are in the operations of having investment recommendation and attaining relevant aspects accordingly. Financial Management issues have now emerged as a curse for the companies, and it was first introduced during the current economic crisis. All of such problems and issues introduced in the economies because of the arrival of problems associated with the compliance behavior of the companies (Naidoo, 2002).
Gramm-Leach-Bliley Act was specifically made for the shareholders to manage their investment in a best possible and effective manner, and it underpins most of the company’s management to undertake powerful action for the level of satisfaction among the shareholders resultantly. The act lies in the fact that the implication, application and compliance not only enhances the productivity of the company, but it also assists the economies to build a powerful and effective economic system which will become essential for all of their future aspects and concerns.
Apart from enhancing the economic function, this particular act is also found powerful and interactive in terms of strengthen the societal functions of the country through increasing the effectiveness of the investment banks and the financial institutions (Naidoo, 2002).
The act requires investment companies, credit rating agencies and insurance companies to comply with these standards in order to keep them away from all possible frays. The role of all of the aforementioned companies intermingle with each other, as before the investment company do their work of investment, they required the Credit Rating Agencies to analyze the investment structure and stance of the company, and should recommend the strategies which will be essential for their long run specifications and concerns.
The implications of all of these agencies along with the act are very powerful for the economic system for our society because the level of frauds and forgeries are increasing heavily in almost every part of the world. It not only decreases the financial structure of the companies, but it also makes it very hard for the shareholders to gain confidence over the company’s operations again (Naidoo, 2002). The implication of this act requires notifying the effectiveness of the shareholders in the best possible manner of the company, and bringing powerful actions for their positive execution.
Corporate Governance or Corporate Social Responsibility (CSR) is some of the basic themes and standards that are mandatory for an organization to comply with for their long run existence in the industry.
Corporate Governance is also referred as Business Ethics, as it will bring those things into executions which are essential for their long run effectiveness and growth. This is the main reason why the organizations in all over the world are in the favor of increasing the governance factor within their operations as it is the only thing from which they can introduce effectiveness and strengthen their strategic position. The main perspective of this assignment relates on the factor of applying the corporate governance factor for the effectiveness of the company in their long run effectiveness, and Agent Theory is showing that it will be very effective for the companies to increase their economic system in a perfect manner.
Calder, A. (2008). Corporate governance. London: Kogan Page.
Calder, A., & Watkins, S. (2008). IT governance. London: Kogan Page Ltd.
Colley, J. (2005). What is corporate governance?. New York: McGraw-Hill.
Joshi, V. (2004). Corporate governance. Delhi, India: Foundation Books.
Naidoo, R. (2002). Corporate governance. Cape Town: Double Storey.
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