Concepts of corporate governance

Concepts of Corporate Governance

Corporate governance practiced through standard reporting and auditing practices that develop a positive outlook of the firm among investors and raise the value of company shares has become an important business principle . Corporate governance is the process of authoritatively directing an organization (Colley et al , 2005 ) through the application of the basic principles of accountability , responsibility , integrity honesty and trust (Tirole , 2001 . Corporate governance is also the management of relationships within the organization involving members of the board , management team , employee pool as well as suppliers

creditors and customers (Monks Minow , 2003 . Corporate governance encompasses leadership and relationship building that determines corporate management strategies and policies as well as influences the implementation of policies and decisions . Key concepts of corporate governance reflected in accounting and management scandals are organizational architecture , operational architecture , and maximization of shareholder wealth

Accounting scandals and management failures express these corporate management concepts . Enron Corporation is one example of poor corporate governance because its board of directors worked without independence and oversight resulting to earnings manipulations in to ensure greater compensation for the Chairman and some members of the board Enron 's organizational architecture was not heeded when the company engaged in massive external debt and guaranteeing these through share offerings (Wearing , 2005 ) Organizational architecture or the framework guiding the realization of core qualities expressed in the vision and mission of the company (Monks Minow , 2003 Colley et al , 2005 constitute the principles that guide corporate management and the maximization of the shareholder wealth . Lack of oversight and massive borrowing lessened the credit rating of Enron (Wearing , 2005 . There was also weak operational architecture . Operational architecture pertains to the system of information management linked to the various business processes that this supports as well as the manner that the system handles information from these business processes (Monks Minow , 2003 Since there was no independent auditor or auditing team and financial reports to investors were manipulated to show growth even if the company is already in debt . Enron failed at leading and directing the company towards the fulfillment of its organizational architecture because of poor information management and non-consideration of the maximization of shareholder wealth (Wearing , 2005

WorldCom , Inc . is another example of the failure of these concepts WorldCom engaged in a series of aggressive mergers and acquisitions which is reflective of the organizational architecture of the company However , the mergers and acquisitions went overboard resulting to the failure of corporate governance and poor operational architecture since headquarters found it difficult to control and link all its subsidiaries because of the diversity of billing and technical structures as well as sales plans resulting to the mounting of customer complaints and lawsuits . There was also no standard information management since internal audit failed to act on problems of cash overstatement . WorldCom failed to make effective financial policies and implement other management policies that consider the maximization of profit of shareholders (Wearing , 2005

Scandals and management failures could also be due to the impact...