Corporate Governance

Paper Summary:

This paper explains that statutes such as corporate laws, security laws, and accounting practices, maintain the balance between management and shareholders. The author points out that an important factor in corporate governance is the vital difference between the governance of public and of private institutions. Private institutions must be capable of producing a profit, while the public sector must be more transparent than the private sector. The paper stresses that stakeholders, investors, and the government have a right to demand information, and the duty of a well-governed corporation is to provide this information upon demand.

From the Paper:

"The compensation for the top management is one of the major issues of corporate governance today. The primary reason for offering stocks to executives was for raising the share prices and thereby increasing its value for both investors as well as shareholders. Though this proved to be a major success, there were a few executives who would not disclose their stock options or would not make full use of the stock options offered to them. This caused inefficiency in the financial market. Investors were misled, the market information was falsified, and a few even created an artificial value when there actually was none. This only led to disaster, as for example, what happened in the USA in the nineteenth century. This was the time of market innovations such as the railroad and the telegraph. A certain few with adequate foresight rose in their position as important figures, such as John Rockefeller. Such people enjoyed a great freedom in being able to build their businesses and racing much ahead of the competition."

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