Corporate Governance

Corporate Governance

Analyze the three internal governance mechanisms (ownership concentration, boards of directors, and executive compensation) and recommend a possible fourth mechanism that would help align the interests of managerial agents with those of the firm’s owners. Provide specific examples to support your response.

Internal governance mechanisms can be utilized for the purpose of aligning the interests of managerial agents with those of the firm’s owners in order to converge their interests with those of the organization or shareholders. The following mechanisms can be used:

a Ownership concentration: The ownership should not be concentrated among people of one region and should be well diversified in order to ensure that personal or regional interests do not rise.

Board of directors: It is important to ensure that the board of directors are appointed in rotation and also they are not given absolute powers and discretionary powers.

c. Executive compensation: Ensuring that executive compensation is aligned to the interests of the shareholders as well as the interests of the firm helps achieve this purpose.

From the e-Activity, determine how U.S.-based corporations could incorporate elements of the corporate governance practices you researched to help top-level managers make better ethical decisions. Provide specific examples to support your response.

What is meant by the term “corporate governance?” It is basically the systems and processes established by corporate entities for ensuring proper accountability, probity and openness in the conduct of an organization’s business. The basic principles of corporate governance include transparency, accountability, fairness and responsibility founded upon the concept of disclosure to encourage the necessary trust and confidence of shareholders. The UK “comply or explain” approach to corporate governance varies significantly from the general approach taken by SOX. “Although SOX-related regulations use the “comply or explain” method in some instances (for example, in relation to whether a company has a “code of ethics” or its audit committee has a “financial expert”), in most other instances, U.S. regulation tends to rely on the legislation and fines and imprisonment penalties for violating the requirements of SOX.” (The Metropolitan Corporate Counsel, 2005) The easiest way to provide some comparison between the U.S. and UK corporate governance framework is by a comparative table, as set out opposite.

Works Cited

Corporate Governance, 2005 The Metropolitan Corporate Counsel, retrieved on August 18, 2014 from www.metrocorpcounsel.com