Relationships between companies and their management, shareholders, board members, and other stakeholders are important in defining corporate governance. Globalization has in the recent past led to an intensified emphasis on corporate governance.
Most companies are shifting their focus to ensure that corporate governance encompasses both the controllers and shareholders. Good corporate governance is entrusted with the responsibility of providing viable structures that would benefit every stakeholder even if it were in theory. In most cases, these structures rarely benefit all stakeholders. Recent years have witnessed criminal activities committed by corporate officers. It is the responsibility of every effective corporation to ensure that these mischiefs are prosecuted as required by law. This paper will provide an abbreviated history of corporate governance that has led to its current state. It will also endeavor to provide examples of organizations that have provided for scandals and bilked investors (Cross & Miller, 2008, p. 23).
Corporate governance refers to the processes, laws, or rules by which businesses, organizations, or corporations are regulated, operated, or controlled. It may also refer to the structures and internal factors that are put in place by corporate officers, shareholders, and the constitution or other stakeholders to govern the corporation. In addition, other external factors such as clients, government regulations, as well as consumer groups may influence the structuring of corporate governance. In essence, corporate governance involves several stakeholders, encompassing clients, shareholders, management, board of directors, and other participants. Corporate governance should be well defined to accommodate the above-named stakeholders, for their mutual benefit (Sun, 2009, p. 11).
History of Corporate governance to its current state
During the 19th century, corporate boards were given exclusive rights to govern corporations without shareholders’ consent.
This was aimed at better management of corporate governance. However, the adoption of the Delaware model in most public corporations led to an increasingly dissipated shareholder derivative in corporations. The 20th century opened avenues for transformations of corporate governance, especially after the Wall Street crash witnessed in 1929.
This period saw a series of research on corporate governance to develop one that could stand the growing economic problems. These included Nature of the firm, and agency theory, among others, to improve corporate governance. In the process, corporate directors’ duties have grown beyond their initial boundaries. In the 1990s, strings of dismissals have seen rising attention on corporate governance. In addition, the lack of corporate governance in most Asian countries led to the East Asian financial crunch, which affected South Korea, and Indonesia, among others. Recent years have also seen high-profile scandals, which alleged abuse of corporate powers by corporate officers. The 21st century has also witnessed an economic crunch, which unmasked problems facing corporate governance.
State laws govern corporations in the United States. On the other hand, Federal legislation governs the trading and offering of corporate securities. Among the state laws provided for corporations, several states have embraced Model Business Corporation Act, even though most companies have adopted the Delaware model. The corporate charter defines how these corporations are managed. They are supplemented by bylaws, which can be reformed by shareholders (Cross & Miller, 2008, p. 23).
Organizations that have provided for scandals and bilked investors
Various models of corporate governance have been used around the world.
These depend on the type of capitalism in which the country is embedded. The models include Anglo-American, and coordinated models, among others.
The Anglo-American model emphasizes shareholders’ interest, while the coordinated model emphasizes the interests of customers, managers, workers, suppliers as well as the community. Corporate scandals witnessed over the recent past include massive bankruptcies in early 2000, which saw Enron, Worldcom, AOL, Tyco, Crossing, Adelphia Communications, among other companies. This led to the adoption of the Sarbanes-Oxley Act in 2002, reflecting on the importance of corporate governance (TechTarget, 2006, p. 1).
The structures and internal factors that are put in place by corporate officers, shareholders, and the constitution or other stakeholders to govern the corporation define corporate governance. As can be observed above, the model chosen in corporate governance determines the line of emphasis. For instance, Anglo-American and coordinated models emphasize shareholders and customers respectively. Corporate governance is therefore very important in ensuring continuity and mutual benefit of all stakeholders in corporations (Sun, 2009, p. 11).
Cross, F.B., & Miller, R.L. (2008). The legal environment of business: Text and cases – ethical, regulatory, global, and e-commerce issues. (7th ed.). West: Cincinnati.
Sun, W. (2009). How to Govern Corporations So They Serve the Public Good: A Theory of Corporate Governance Emergence. New York: Edwin Mellen
TechTarget. (2006). What is Corporate Governance? Searchfinancialsecurity.