Importance of Corporate governance Essay Example | Topics and Well Written Essays - 2000 words

Importance of Corporate governance - Essay Example However, different types of definitions are provided in various reports. A very simple definition can be found in the reports like South African King Report and Kingdom Cadbury Report. In these reports corporate governance is defined as a â€Å"system by which companies are directed and controlled† (du Plessis, et al, 2010). Clearer definitions began to come after two big companies namely Enron and HIH Insurance Ltd collapsed. In 2007, Australian Securities Exchange (ASX) released a proper definition where corporate governance is said to be a framework of rules, systems, processes and relationships by and within which authority is controlled and exercised in corporations (du Plessis, et al, 2010). With the rise of globalization an aspect that has come up as a significant issue is the convergence of corporate governance systems. This paper attempts to gain insight into this issue. It tries to find out whether the convergence of various governance systems is actually possible or not. In the process of doing that, the paper includes several important data that are collected from different books and previous research works. Not just facts, but a major portion of the paper is consisted of the analysis of these facts. Corporate Governance Before getting straight into the main subject i.e. ‘convergence of corporate governance systems’, one must have enough idea about the concept known as ‘corporate governance’. The introductory paragraph contains few definitions of the term, but they are needed to be further explained. According to Prasad, corporate governance is the relationship that has existence among various participants and that define the performance as well as the direction of corporate firms (Prasad, 2006). He believes that the main actors who play crucial role in corporate governance include the CEO, the shareholders and the board of directors. Beside them there are actors like employees, customers and suppliers who are also c apable of influencing the governance system in a particular organization (Prasad, 2006). There are number of essential elements that are associated with corporate governance. Seven of such elements which are mentioned in South African King Report (2002) are transparency, discipline, independence, responsibility, accountability, social responsibility and fairness. In 2003, ASX recognized important principles that are basis of good corporate governance (du Plessis, et al, 2010). Strong foundations for management’s roles, structure of the board that is capable of adding value, responsible and ethical decision making are some of these crucial principles that make the governance an effective one. Convergence of Corporate Governance Systems Over the past few years experts from both professional as well as academic world have been arguing whether the governance systems that are present across various nations should be converged or not. It is observed that there are different governa nce models that are in use in several countries. For instance, the outsider model has been followed mainly in US and United Kingdom. On other side, there is insider model which has been followed in other OECD countries like France, Germany and Australia. Another system namely, the family/state system is found in nation like Sweden (Nestor & Thompson, n.d.). Over the years global business environment has experienced significant changes. Changed situations