Development Of Corporate Governance

Published Date: 02 Nov 2017

The problem of corporate governance is not a problem that is not new in the business and economy had already been said by Adam Smith. This is the conflict of interest arising in the separation between ownership and management. This conflict is deepened from mid 1940s, with the acceleration of the process of globalization, driven by global economic growth, technological development, the globalization of banking, the expansion of large corporations and development international financial markets. In the 1970s the problem arises between markets and firms, between banks, investors and holders of bonds and stocks, on the one hand and managers, on the other. This problem can occur before and after the same contract. In the first case, originate adverse selection problems, whose resolution is proposed from the models of debt and equity signaling and monitoring or detection. In the second case, agency problems, whose resolution is proposed from the cost models agency, stakeholders and corporate strategy. In the second half of the 1980s, with the expression corporate governance begins the study of the problem in a more comprehensive, including all the signature and not just finance. We analyze the internal and external mechanisms by which direct and control the corporations. Many countries sanctioned codes of good governance or good corporate practices.

Companies are developed with capitalism. With the division of labor and delegation of power to make decisions, to administrators other than the owners, it creates the problem of separation between ownership and management, which is early by Adam Smith said, referring to companies limited by shares, argues that "From the directors of such companies, however, being the managers of the money of others and not their own, they can not be expected to be watched with the same anxious diligence with which the partners in a private company frequently monitor the his own "( Adam Smith). In most general form, it is a problem of representation and use of power, which also exists between the state and its agencies and civil society, as an expression of all the citizens of a country. These deliver power to their representatives (administrators) to rule in favor of those (owners), but this does not always happen.

The problem of governance strong comeback in the 1970s, in a context of crisis and uncertainty globally generated, among other things, by the process of globalization, the decline of the welfare state and its replacement by neoliberalism, crises the oil, changing the mode of production, global economic deregulation, the formation of the global financial markets, the free movement of international financial capital, borrowing undeveloped countries, the weakness of democracies in these countries, the advancement of social protest movements and vindication of civil, political and social, and the exacerbation of the problem of poverty in the world, after a long period of global economic growth, which increases the gap between rich and poor countries. Democratic governance studies begin with the Trilateral Commission Report of 1975. In the field of private business, the problem of the separation between ownership and management, early raised by Smith in 1776, is picked up in 1932 by Berle and Means (1932), after the crisis of 1929 Stock Market in New York. In this context, these authors share the position of Smith and considered unviable companies where there is this separation. This contractual theory of the firm is the debate that is installed in the 1970s on the problem of information and control firms in a context of crisis and uncertainty.

The problems related to information and control of corporations is exacerbated in the 1980s by the expansion and integration of international financial markets, the consolidation of the globalization process and the constitution of the new world order. In the late 1980s and early the 1990s, the problem of information and corporate control begins to be approached as a problem of governance. The topic attracts the attention of businessmen, researchers and diffuses a growing interest in the popular press and specialized. Markets and corporations constituted the axis of the new order installed economically and politically in the world. This involves the deepening of the problems of information asymmetry, adverse selection, hidden information, moral hazard, agency costs, stakeholders and corporate strategy. The focus of the discussion is focused on the identification of what should be considered good corporate practices. The Cadbury Report, published in Britain in 1992, is the first record in this regard. In other countries there are similar reports: In Canada the Dey Report (1993), in France Vienot Report (1995), in the Netherlands the Peters Report (1997), in Spain the Olivencia Report (1998) and in Belgium the Cardon Report (1998). In 1999, the Organization for Economic Cooperation and Development adopted the Principles, intended to "assist governments of member and non-member countries in their efforts to evaluate and improve the legal, institutional and regulatory framework for corporate governance in their countries as well as providing guidelines and suggestions for stock exchanges, investors, corporations, and other parties involved in the process of developing good corporate governance practices "OECD (1999)

What are the characteristics of good corporate governance and how are they contributing factors in enhancing the value of the firm?

Corporate governance is based on four main principles behind it which are: responsibility, independence, transparency and equality.

-Responsibility: Clear identification of shareholders and the responsibilities that they possess.

-Independence: This item refers to corporate governance making both company executives and auditors who must verify financial information, with a ratio incorruptible and conduct their actions in the way of fairness, objectivity and independence of the other board members.

-Transparency: This element highlights the importance of transparency in corporate governance as it promotes broad reporting requirement, timely and accurate to reflect the true financial position of the company or society and the emphasis on the responsibility of the managers to keep shareholders informed about the funds obtained and its use, this means financial information.

-Equality: Finally corporate governance promotes equal rights of shareholders with respect to the affairs of the corporation or company, ie that all shareholders have the right to find out what happens to the company every day.

These elements are an essential part of corporate governance and that each of the 4 has an essential weight inside. Good corporate governance generally includes the following features:

• A table of managers who performed their duties with responsibility and skill.

• A CEO or Managing Director, chosen by the board of directors, with attitude responsible for the execution of the tasks of the company.

• A vision of continuous improvement, shared by the board, investors and CEO.

• It is important to have well in mind the type of business in which it competes and the company's position within the industry. This is helpful because you need to always seek the satisfaction of end users as well as obtaining income allow the company to survive.

In addition to these four essential characteristics usually include corporate governance generally features such as:

Standards to favor the existence of harmonious relations among investors capital and promote mutual respect for the rights and interests of all kinds of shareholders, regardless of size. They have included the creation of mechanisms for shareholders to know the actions of the administration, to avoid conflicts of interest with the company, know the risks of the business, internal control elements, policies and strategies, development plans, problem events, protecting the interests of minority shareholders, society relations with shareholders, and with family and relate to, among other issues.

Rules that maintain harmonious relationships with managers and administrators, such that lead to proper functioning of the company. For example, aspects such as policies for the creation and abolition of posts, appointment of directors and executives, knowledge of their resumes and experiences, levels of fixed and variable remuneration, responsibilities, individual responsibilities, elationships of society with employees, managers and directors, and their relatives and associates.

• Standards related to internal and external control of society, whether executed by statutory auditors, auditors or other watchdogs. In particular, access to glosses or comments of the drivers is an issue of particular relevance.

• Standards to enable drive and maintain harmonious relationships with customers and suppliers. The objective here is to promote values ​​such as service, quality, timeliness, compliance and respect for the customer or supplier.

• Standards related to transparency of information, through which should encourage the dissemination of information on the financial statements, the evolution of society, the evolution of their action in the market, the management of their investments, relations with their debtors and creditors, collateral received or granted, future development projects.

• The establishment of codes of conduct or ethics for employees and managers. (Eg, respect, loyalty, honesty, non-discrimination on grounds of sex or religion, good service, accountability, compliance, preservation of property and trade secrets of the company, etc..).

Also contemplated are the facts that create conflicts of interest, internal behaviors expected of employees, use of information and confidentiality levels, formal and informal communications, the use of company assets, etc.. It is sometimes also include related issues such as money laundering, ethical relationships with third parties, companies, individuals or authorities, corruption and loyalty codes with competitors and partners.

Benefits of good corporate governance

• Companies with good corporate governance promotes the use efficient resource for the economy, this is because the money flows more easily in the most efficient firms.

• Being a reliable (due to corporate governance) in the eyes investors, is achieved which have greater resources are invested in the company at a lower cost.

• Companies with good corporate governance can best achieve their business goals.

The scams and scandals that caused the companies: Enron, Tyco, Xerox and World Com, go beyond accounting malpractices, as they emphasized that many of these business failures were due to a poor or bad governance, is why it is assumed that the most likely large corporations have had a different ending if they had used government mechanisms in one form or another would have helped to direct and control the company Because of this, the main challenge for companies is to discover how to improve corporate governance and practices, this in order to improve foreign investment and to obtain growth and development. He believes that entrepreneurs should take more seriously the fact in their companies implement governance mechanisms that can ensure financial transparency and legality to potential investors, which results in less economic crises and financial fraud.

Finally it should be noted that it is very positive that promote practices relating to corporate governance. No doubt other institutions of any kind, large or small, gradually adopt good governance rules and form a culture of values ​​and ethic; we will have not only better societies, but also better business and better employees

3.How have the companies that you selected for your FIN 2003G individual project developed and promoted corporate governance within their organizations?

At this point I will try to discuss the problem and changes arising after the company Google acquired Motorola.

Google has completed its $ 12.5 billion purchase of device maker Motorola Mobility in a deal that poses new challenges for the Internet's most powerful company.

Buying Google pushes deeper into the business of cell phones, a market which came four years ago with the debut of its Android software, now the main challenge for Apple iPhones.

  The mobile phone maker Motorola now ranks eighth with 2 percent of the market share worldwide, according to Gartner.

As part of the new measures after the acquisition by Google, Motorola Mobility has divested 40% of its vice presidents and hired new executives.

The first step that chose Google CEO Larry Page named as one of his top lieutenants, Dennis Woodside, CEO of Motorola. Replaces Sanjay Jha, 49, who will remain at the right time to assist in the change of ownership.

As part of the new measures after the acquisition by Google, Motorola Mobility has divested 40% of its vice presidents and hired new executives.

Motorola will provide "generous package" of dismissal and provide services to their employees to find other jobs, according to Google, which expects to have expenses in excess of $ 275 million in damages, to be included in the results of the third quarter

This policy followed by Google with the replacement of the CEO can generate a large destabilization within Motorola and its corporate governance, since, many employees may be affected or be replaced by others more suited to the preferences of the CEO of Google.