Corporate Governance Leadership Public Companies

Question: Describe about the Corporate Governance Leadership for Public Companies. Answer: Introduction According to Rezaee (2009), corporate governance is the relationship between different role players in a company which includes the board of management, shareholders and directors that influence the running of a company and determine its performance. The Australian Securities Exchange (ASX) plays a pivotal role to ensure that the systems and framework of rules that govern public companies together with the management of the corporations are underpinned by integrity and notions of good practice. Why were the ASX Recommendations Introduced and Issues they Were Meant to Overcome overcome? According to Wang and Oliver (2009), the inception of the recommendations was ignited by the periodic company failures precipitated by notorious accounting inconsistencies and ethical megaflop. Abidin and Kamal (2009) suggest that other causes that fueled the inception of the recommendations is the recurrence of cases where the directors negligent fail to monitor the functioning of the company while other board members are oblivious about their obligations towards the shareholders of the company. The need to demonstrate good governance practices has been said to emanate from the market forces rather than mere legal sanctions. What Roles do ASX Recommendations play? The ASX thus ensures effective and corporate governance to promote investor confidence and improve firm governance. The recommendations by ASX which are voluntarily rather than mandatory according to Christensen et al. (2010) have the moral imperative of recommending idiosyncratic corporative governance practices for entities that are listed at the ASX, which meet reasonable expectation of most investors. They have helped to create value through innovation and provide accountability and development of board evaluation process in the control systems. It is imperative to note that hey have also reflected an innovative change in the management of companies given the tailored solutions it has established. They also ensure that the disclosures made by the companies are made timeously so that the public can have the material facts on its material price and value of its securities. To maintain competent and quality directors who have the required skill and expertise, the recommendations ser ve to ensure that the directors are remunerated fairly and responsibly. The recommendations ensure that the board of directors in the companies adds value to the company while they act with the highest degree of work ethic. By 2004, it was apparent that improving the control and management of public companies was not the sole role of the recommendations on governance principles. Good governance recommendations have gone further assist in attracting capital in the global market while they also immensely influence the cost of capital in the market. They have also ensured that the directors of the company have the requisite competence and understanding to deal with emerging issues in the economy, which has assisted in reducing the risks that are exposed to shareholders while improving the performance of the companies (Spanos 2005). Recently, it has been argued that the application of these governance principle recommendations has enhanced the economic health within the country (Arjoon 2005). Application of the Recommendation on Corporate Governance to Small Private Companies: The Challenges The principles of governance and recommendations have been argued to be preferentially applicable to large public entities in most instances. However, the same is hardly applicable to small private companies because the management structure is relatively small. It has been argued that the governance principles should be standardized to fit the small private companies .The recommendations have been said to fit in the complex management of public listed companies that require high level of disclosure. The checks and balances together with accountability related issues are easy to manage within the company and thus the governance principles lack a suitable function within small private companies. Suffice to say, the running of the small private entities is based on an impregnable trust among friend family and in fewer circumstances supplier (Corbetta and Salvato 2004). This makes the application of the recommendations to small private entities actions a legal quandary. Most family businesses are run based on the wishes of particular members of the family. It may be an uphill battle to apply the governance principles to family business bearing in mind that some of personnel in the management may lack the compentence required in running a business and they are in most instances not ready and willing to accept academic inputs. (Krappe, Goutas and Schlippe 2011) On the other hand, the private companies are usually run by one director required by law. This poses a challenge in applying the complex recommendations to directors of a company. The tasks and duties of the director are less compared to the duties that are bestowed on the several directors in large listed companies. Sole directors of a companies can also are motivated by the self confidence and in most instances they trust their competency and skills and so it becomes difficult for them to apply the governance principles. Most private small entities are run and managed by the owners of the business who fail to view the entity from a governance lense (Brown and Beekes 2011). Owners of such small firms are normally in reluctant and timorous to consider external factors that will enhance the management of the company. They have defined visions and goals for the business that may not be parallel to the visions of the recommendations of good governance. According to Clarke and Klettner (2010) private companies are exposed to less risk which may not have a devastating effect on the running company. Therefore, the small companies do not have an onerous task to deal with risk management issues and there the recommendations on governance objective of ensuring proper risk management will not be entirely applicable to them. Conclusion The recommendations on the principles of good governance are paramount for the success of companies. Small private companies should also embrace these recommendations to ensure growth and expansion of their business. It has been argued that there are family businesses that are so large and play a significant role in the global economy. It is through the enhancement of good governance practices that they were able to grow and expand their business. It is thus advised that the small private entities should embrace them to. In Australia, it is recommended that the principles on good governance should not be left to be voluntary but rather they should be given a mandatory force by legislation to prevent fraud cases that have been rampant in companies. Bibliography Abidin, Z Kamal, N 2009, Board Structure and Corporate Performance in Malaysia, International Journal of Economics and Finance Arjoon, S 2005, Corporate governance: An ethical perspective, Journal of Business Ethics Brown, P, Beekes, W, 2011, Corporate governance, accounting and finance: a review. Accounting finance 51 (1): 96-172. Christensen, J, Kent, P, Stewart, J,2010 , Corporate Governance and Company Performance in Australia, Australian Accounting Review Clarke, T Klettner, A, 2010, Governance Issues of SMEs, Journal of Business Systems, Governance and Ethics Corbetta, G, and Salvato, C, 2004, The board of directors in family firms: One size fits all?, Family Business Review 17(2): 119-134 Krappe, A , Goutas, L, and Schlippe, A. (2011) The Family Business Brand: An Enquiry into the Construction of the Image of Family Business. Journal of Political Economy, Rezaee, Z 2009, Corporate Governance and Ethics, John Wiley Sons, Inc.USA. Spanos, L 2005, 'Corporate Governance in Greece: Developments and Policy Implications', Corporate Governance vol 5 Wang, Y Oliver, J 2009, Board composition and firm performance variance: Australian evidence; Accounting Research Journal