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

Corporate Governance

Extracts from this document...


2. 'When they were put to the test, corporate governance routines did not serve their purpose to safeguard against excessive risk taking.... the risk management systems have failed in many cases due to corporate governance procedures rather than inadequacy of [complex financial] computer models alone." With reference to the one of the theoretical models of the corporation you have studied consider: a) What, if any, are the legal obligations of directors of Australian companies generally to safeguard their company against excessive risk taking? The primary responsibility of the board of directors is to protect the shareholders' assets and ensure they receive a reasonable return on their investment at a given risk appetite. This is however, rarely the case. Directors are most likely to engage in excessive risk taking1 (Adler) to further their own personal interest and incentives at the expense of the company and its' stakeholders. Contractarian theory revolves around the notion that the corporation is deconstructed to reveal no more than a "nexus of contracting relationships" between managers, shareholders and other stakeholders.2 Its core innovation was to conceptualise the relationship between management and shareholders of a public company as a corporate contract in which wealth would be maximised as a result of atomistic market-mediated actions.3 The primary criteria behind contracting alternatives is one which secures the lowest agency cost. Such cost arises from the divergence in interest between the principal and agent and is inherent in any arrangements where there is a delegation of decision making authority from the principal to the agent with disparate personal utility. ...read more.


The board's interests were in conflict the decision to expand did not only stem from the adequate performance base of the directors but also fuelled by their personal interest of greater remuneration. The ASX corporate governance principles outlined the preferable majority of independent directors for the establishment of remuneration committees so as to reduce the possibility of directors from making impaired decision creating substantially detrimental agency costs for the company.12 Consistent to contractarian beliefs, the market's 'invisible hand' brought into effect doctrinal constraints upon management such as to ensure the performance of the contract relationship between directors and shareholders in corporate governance. However, there are exceptional cases whereby market forces were seen to be insufficient to stimulate director's obligation to be properly manifested in Australian corporate governance practice. c) With reference to the theory you have chosen, consider why, and in relation to whom, we might want to improve the governance of risk taking by Australian boards of directors? Shareholders claims usually stem from them being the ultimate risk bearers in a company in that their financial claim are postponed to those of creditors in liquidation. They are the residual claimants on firm value, and delegate the corporate decision making to managers and the board of directors. Since their wealth is in the control of the corporation, they should be secured from the improper use of their investment capital by the directors through excessive risk taking. It is imperative that such confidence should be built as it helps attract further equity financing from shareholders. ...read more.


As a checking and monitoring means, the utilisation of external audits provides a third party review of the mechanisms designed to minimise agency costs. They ensure that the behaviour of management, the board of directors and related parties are in the best interests of equity and debt holders and verifies the accurate communication of the company's financial position. 1 ASIC v Adler [2002] NSWSC 171 2 M C Jensen & W H Meckling, "Theory of the Firm: Managerial Behaviour, Agency Costs and Ownership Structure" (1976) 3 J Fin Econ 305, reprinted in Posner & Scott, p 39. 3 Frank H. Easterbrook & Daniel R. Fischel, The Economic Structure of Corporate Law 1-39 (1991) 4 Corporations Act 2001 5 Corporations Act 2001, s180(2) 6 F H Easterbrook & D R Fischel (1989) 89 Colum L Rev 1416 7 Grant Fleming, Corporate Governance in Australia, Agenda, Volume 10, Number 3, 2003, p 195-212. 8 Wheelwright, E. (1957), Ownership and Control of Australian Companies: A Study of 102 of the Largest Public Companies Incorporated in Australia, The Law Book Co. of Australasia, Sydney. 9 Grant Fleming, n 7 10 Merrett, D. (2002), 'Corporate Governance, Incentives and the Internationalization of Australian Business', Paper to the Business History Conference, Delaware 2002. 11 Grant Fleming, n 7 12 ASX Corporate Governance Principles 8.1 13 Grant Fleming, n 7 14 R S Kaplan and D S Norton, "The Balanced Scorecard - Measures that Drive Performance", Harvard Business Review, January - February, 1992, p 71-79 15 Grant Fleming, n 7 16 W B, Jr Werther and D Chandler, Strategic Corporate Social Responsibility. Stakeholders in a Global environment, Thousand Oaks (California)- London, 2006, Pages 6 17 Gerald, n 7 ?? ?? ?? ?? 1 ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our University Degree Human Resource Management 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 University Degree Human Resource Management essays

  1. Balanced Scorecard for Telecom Industry

    the profit; and a business environment which would attract investors and thus contribute to the FDI flowing in the country, and eventually landing in the GDP of Pakistan. Exhibit 5 shows that the total FDI flowing into the telecom sector; the highest has been retained by the Cellular Sector, as compared to the other sectors in the telecom industry.


    The focus group could see potential benefits, but were not convinced of its overall value. For multi-source feedback use in appraisal, the gap between expectations and experiences for managers is higher than that for more junior staff. The current performance appraisal system measures achievement of objectives.

  1. Reward Management, Monitoring Performance and Exit Rights & Procedures

    jobs, although it has never been dignified in the job evaluation texts as a formal method of job evaluation. It simply means comparing the job under review with any internal job that is believed to be properly graded and paid, and placing the job under consideration into the same grade as that job.

  2. Project risk management.

    Time Management competence Time is one of the major stress factors project managers face,managers have to deal with deadlines and other time constraints.The basic way not to loose time is by getting into the a routine of making "To Do " lists and Reminders.

  1. Job Satisfaction

    The "Motivation" factors are intrinsic to the job content and consist of factors like achievement, recognition, responsibilities, interest in the job, advancement to higher levels and growth. The presence of these factors in an employment situation motivate workers to try for superior performances; their absence may not demotivate them if

  2. Psychological Contract

    rate of head count cut has been intensified over the last six months due the coalition government pronouncements about cutting local government budget. Employees within the council are now getting anxious and demoralise at the prospect of either their job being lost or downgraded.

  1. Psychological Contracts

    required to do in order to meet their obligations and what they can expect from their job. The psychological contract has strategic implications to both employers and employees. From an employee's point of view, they want to know that their interests will be taken into account when important decisions are

  2. Employee Motivation. Case Study of the incentive schemes at the Jodhpur branch of ...

    ONGC today is repositioning itself to fasten the principle of relational enterprise through partnership\strategic alliances \joint ventures with preferred partners and adopt a business strategy which relies on company skills and positional assets with focus on core business areas and opportunity specific diversification.

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