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Corporate Governance: Incentive And Compensation

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Question:

Discuss about the Corporate Governance for Incentive and Compensation.

 

Answer:

A corporation is a separate legal entity distinct from the shareholder.  The shareholders choose the board who act on their behalf. The following study examines the impact of corporate governance codes of practice is general slowdown decision making at company board level. This gradually slow down the decision making at the company level and creates difficulty in introducing innovation and creativity.  Some of the elements of good governance are beneficial for the company in order to keep board vigilance, incentive and compensation.  Overall it is clear from the above statement that corporate governance at times is painful. The recent changes in the managerial discretion have resulted in the wake of financial downturn. This in result has   restricted an appropriate approach to manage the upcoming crises. This creates a pressure at the time of crises to eventually meet the desired outcome. In short, at times when there is a complete panic state, board can give relaxation to the top manager to fully respond as per their understanding to an issue Contrary to the conventional approach on good governance (McCahery et al 2016).

The officers and board of directors have a fiduciary duty to act in the best interest of the corporation. The board is held liable in case of breach of duties and not meeting the standard requirements.  Corporate governance has become a problem to manage a large sized business organization the separation of ownership and management has created a gap in managing organizational goal. This causes conflict in between the organization while maximizing shareholder value and individual interest.  There can be an illegal insider trading because the board members and directors have an access to confidential information that might affect the value of the share (Obradovich and Gill, 2013).

Corporate governance and ownership affect innovation activity more strongly when innovation. Corporate governance slow down the decision making and stifle organization on a survey conducted by KPMG and Lindstock, companies do have a unanimous view on the expenditure made on the Corporate Governance.  They are not even adding much value to the shareholder. There is a continuous arguments related to the risk associated with the financial performance of the company. There is a risk in relation to monitoring an improving the corporate governance. A procedural approach to the corporate governance is wrong. However there are certain vague approaches to the corporate governance that can slowdown the management and decision making process. There are certain level if destruction because people undertake project they should not undertake (Edmans, 2014).  This directly affects the NPV of the project hence depreciating the value.  The main motive of a corporation is to maximize profits for the stockholders only, disregarding the 'stakes'.  A corporation is an artificial entity not having social responsibilities and obligations to stakeholders can cause an issue in delegating responsibility. The arguments related to implication of corporate governance whilst in support of the narrow view of corporate governance (Carnes, 2013). This is proven fact that firms with an accountable and more transparent manner draw investor self-confidence to leverage debt, and to determine customer centric and socially responsibility. This has become even more profitable due to an effective organizational measure (Tricker and Tricker, 2015).

 

This will allow in developing an effective justification for the broader view of corporate governance. This is necessary for managing the financial reporting system. This unnecessary delay in meeting the requisite related to the corporate governance is proving out to be an unnecessary burden in delivering results.  Moreover this is more backward and historical in nature (Bebchuk, Cohen and Ferrell, 2008).  The concept ever grew adding on sustainability and environmental management reports. The business engages the community and the natural environment in order to promote consistent growth. While Building on the triple bottom-line platform, Financial Reporting is moving towards the future hence restricting the modern concept. An integrated report regarding the corporate governance communication is regarding the organization’s strategy, governance, performance and prospects, so the external environment, lead to creation of value (Osabiniyi, 2017).

Meanwhile, the evolution of financial reporting is important for managing the corporate governance in order to create value for the longer term.  This encompasses customer value, corporate social responsibility and sustainability issues to be managed for a longer-time period. An organization focusing over the concept of corporate governance will have a shorter life span. Innovation and creativity is restricted in managing the organization following corporate governance (Williams, 2016).

The concept of corporate governance in Australia widens further than compliance with regulatory necessities and involves a mix of authoritarian and voluntary elements. For evaluating it, the Australian governance involves the three key elements:

  • ‘Hard’ law, which include a regular fulfillment of the Corporations Act 2001 (Cth) (Corporations Act),
  • ‘Soft’ law, These are the rules framed by the Australian Securities Exchange Limited (ASX) governing the contract under law
  • The Non-binding guidelines include the third edition1 of the ASX Corporate Governance Council’s Principles and Recommendations ((Williams, 2016).

The continuous evolution of corporate governance is important for framing the policies of a corporation. The wider approach to governance is creating opportunities in meeting the designated roles and appropriate authority. This helps in managing the information in an effective way. For making a purposeful intervention, there is a necessity to allow development in order to manage the organizational goal. They are not even adding much value to the shareholder. There is a continuous arguments related to the risk associated with the financial performance of the company. Hence in order to motivate innovation and development, it is necessary to manage the process of consistent growth. It is seldom seen that corporate governance is affecting the growth process in an organization. While implementing an innovative exercise, Corporate Governance thereby hinders the growth which affects the organizational goal. However, to reduce the cases of non-compliance of legal issues, Corporate Governance sets an effective parameter. Due to this reason it is evident for an organization for ignoring its implications on long run.

 

References 

Bebchuk, L., Cohen, A. and Ferrell, A., 2008. What matters in corporate governance? The Review of financial studies, 22(2), pp.783-827.

Carnes,D.2013. The Disadvantages of Corporate Governance. Online. Available at: https://info.legalzoom.com/disadvantages-corporate-governance-20070.html Accessed on: 13 October 2017

Edmans, A., 2014. Blockholders and corporate governance. Annu. Rev. Financ. Econ., 6(1), pp.23-50.

McCahery, J.A., Sautner, Z. and Starks, L.T., 2016. Behind the scenes: The corporate governance preferences of institutional investors. The Journal of Finance, 71(6), pp.2905-2932.

Obradovich, J. and Gill, A., 2013. The impact of corporate governance and financial leverage on the value of American firms.

Osabiniyi,O.2017. The Pros and Cons of Corporate Governance. Online. Available at: https://www.linkedin.com/pulse/pros-cons-corporate-governance-oscar-osabinyi-fcca Accessed on: 13 October 2017

Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices. Oxford University Press, USA.

Williams, I.2016. CORPORATE GOVERNANCE IN AUSTRALIA: A SNAPSHOT. Online. Available at: https://www.herbertsmithfreehills.com/latest-thinking/corporate-governance-in-australia-a-snapshot Accessed on: 13 October 2017

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