• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Corporate governance has a positive link to corporate performance.

Extracts from this document...


Internationally, over the past few years, much emphasis has been placed on the importance of corporate governance. In a recent study Moxey (2002) argued that there is a growing consensus that corporate governance has a positive link to corporate performance. Countries with high standards of corporate governance practices are more likely to attract international capital. If corporate governance had been deeply flawed, the current level of national productivity could not be achieved. Generally speaking, large incorporated businesses are usually owned by one group of people (the owners or shareholders) whilst being run by another group of people (the management or the directors). This separation of ownership from management creates an issue of trust, called Agency problem. The management has to be trusted to run the company in the interest of the shareholders and other stakeholders. If information were available to all stakeholders in the same form at the same time, corporate governance would not be an issue at all. With the same information as managers, shareholders and creditors would not worry about the management wasting their money on useless projects; suppliers would not worry about the customer not fulfilling its part of a supply agreement; and customers would not worry about a supplier firm not delivering the goods or services agreed. However, in the real world of imperfect information, each agent will use whatever informational advantage they may have. ...read more.


Firstly, it is a law of nature that, if the terms of one's theory cannot be defined, then there may be a problem with the theory. Stakeholder theory has this fundamental obstacle: no one can seem to agree on a definition for the term " stakeholder". Even assuming that scholars are capable of reaching agreement on the actual definition of " stakeholder," there is another obstacle to the application of stakeholder theory: no one seems certain exactly how the theory should work. As Sternberg (1998) said, " the meaning of the term 'stakeholder' has itself changed significantly over time. Like the criterion of being a stakeholder, the main uses of stakeholder theory have also altered radically"(Sternberg, 1998 pp.94-95). Secondly, directors and managers of business corporations have to make a myriad of decision everyday. Each decision, however, is governed by the organisation's fundamental purpose: to maximise shareholder value for the owners. But in a stakeholder world, a corporation could easily become accountable to almost anyone or everyone: as is well known, an organisation that is accountable to all easily becomes accountable to no one. "Multiple accountability can only function if everyone involved accepts a clear common purpose. But that is what stakeholder theory conspicuously rejects." ( Sternberg, 1998, pp.98) Thirdly, apart from the definitional and operational ambiguities and problems in stakeholder theory, there remains the problem that the concept contradicts the property law. ...read more.


True, they may have an interest in how corporations affect them, but to have a stake in something is to care about its prospects, as one might when investing in a firm. Whether the "good" the stakeholder group wants is provided by this or that corporation doesn't matter to them; whether the "bad" it complains of is alleviated by this or that corporation also doesn't matter. Whether a given corporation is succeeding in the market is of no concern to these groups because they have made no commitment to it. In an age of competition from a widening variety of sources, expanding markets, and increased diversity in employment populations, businesses may feel they are being hit from all sides. The term "stakeholder" seems to capture the feeling of having to concern oneself with multiple points of impact. However, the only true stakeholders are shareholders. Good corporate governance means running the corporation in such a way that the interests of the shareholders are protected while ensuring that the other stakeholders' requirements are fulfilled as far as possible. The social obligations of the firm are limited to make good on contracts, obey the law and adhere to ordinary moral expectations (Windsor, 1998). Stakeholder theory can be "a useful label for all those individual and group which have to be taken into account" (Sternberg, 1998, pp.107). However, it can't be considered as a modal of good corporate governance because of its imprecision in definition and execution and its disregard for property rights. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Structures, Objectives & External Influences section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Structures, Objectives & External Influences essays

  1. Marked by a teacher

    Marketing Management - Swisher Mower and Machine Company.

    5 star(s)

    12,100 units for year 1996~1998 respectively, with net increase of 674, 7,900 and 7,900 after cannibalization. Financial Analysis * Additional income per unit (Table B) * As stated in Assumption b), united fixed cost is overstated. Hence, gross profit of the proposal would be slightly higher.

  2. Marked by a teacher

    ASDA's Ownership

    4 star(s)

    Without the government saying yes to businesses there wouldn't be employees. The government are responsible for introducing trade and state laws. The make sure all businesses operate fairly and don't cheat the public out of anything. They (the government) have set up standards.

  1. Oxfam stakeholder

    Over half a million people in the UK make a regular financial contribution towards its work. Many London Marathon competitors run to raise money for Oxfam, and Oxfam also receives funds in return for providing and organizing volunteer stewards at festivals.

  2. Btec National Business Level 3 Year 1 - Exploring Business Activity

    For M3 assignment 5 we need to back up all the evidence from p2, p3 and p4. In section 1: I created an organisational chart for both Microsoft and Oxfam. It should show the key areas of the businesses, and who is responsible for whom.

  1. The Business Environment Coursework. Describe the type of business, purpose and ownership of ...

    Tesco may need to ensure they have enough members of staff so that staff are not working more than they should be and taking adequate breaks. In China they also have employment laws; this can make it very difficult for staff to have their employment terminated.

  2. Free essay

    Business Ethics

    What is an ethical dilemma? An ethical dilemma is a situation that will often involve an apparent conflict between moral imperatives, in which to obey one would result in transgressing another. Ethical issues at British American Tobacco plc The main aim of business is to make profit but to make

  1. A stakeholder in an organization is (by definition) any group or individual who can ...

    The results could be based on the different functions. A stakeholder can be anyone who finances the project, someone who has knowledge and skills to produce a certain product, someone who is expert in the related field, an organization whose rules developers must obey or an external organization that can influence project towards the success, such as an environmental group or a competitor.

  2. Comparison of stakeholders interest and influence. Apple vs. Mercedes Benz

    The business environment directly influences the strategic plan as it provides standards of responsibility for the employees and the resources. The business type of Mercedes Benz effects the strategic plan because it allows them to understand how high goals can be set and if they can manage it under that type of ownership e.g.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work