Corporate Governance

Dominique Johnson- Lindsay

October 12, 2011

Chapter 10

Corporate Governance

Corporate governance is the pattern of relations and controls between the stockholders, the board of directors, and the top management of a company. The idea of corporate governance is to govern a corporation, a separate legal entity. Corporate governance serves as a mechanism of control to allow corporation to be fair, effective, and efficient.

“Corporate governance is all about three words: expectations, communications, and accountability.” “The expectations are include the policies, procedures, practices, and guidelines of what is expected from employees. It gives an overview of what the company expects. It also sets a standard for those in the company to be ethical and professional. Communication involves making sure that the expectations are explained and implemented. Without communication, a conflict of interest can arise, causing the organization to deteriorate. Lastly, accountability involves making those people responsible for the results of their actions when it comes to expectations. Accountability places responsibility directly into peoples’ hands instead of hiding it.

Corporate governance controls are divided into internal and external factors. The internal factors involve how the company governs itself concerning the internal factors of the company such as management and employees. External factors typically involve government regulation. Both of these controls are necessary to combat dishonesty and implement control. “It is essential that the activities of corporate executives are under constant, vigorous and public scrutiny, because those activities are crucial to the economic well-being of society. If anything, developments both locally and internationally during 2001 have emphasized the need to continuously update and upgrade corporate governance standards. “- Ann Crotty (Business Day)

Internally a corporation’s stockholders elect a board of directors. The board of directors has a duty to use their decision-making abilities to achieve profit for the company as well as assess and improve areas in the company. Some of the tasks of a board of directors include self-assessment, evaluation of CEO, allocating resources, exercising fiduciary responsibility and control, and determining executive compensation.

In recent years, we have seen the need for corporate governance more and more. Company scandals involving top management as well as some employees have plagued our society for a while. In fact, in my opinion, they have become so commonplace that we as the public are not typically surprised anymore. Notably are companies such as Enron, Tyco, Aldephia and Birmingham’s own HealthSouth. In each of their companies there was the opportunity to steal money, make fraudulent