Question

Critically assess the roles and responsibilities of the following stakeholders in corporate governance:

a. shareholder

b. external auditors

c. major creditors

Answer 1

Corporate governance is the system of rules, practices and processes by which a firm is directed and controlled. Corporate governance essentially involves balancing the interests of a company's many stakeholders, such as shareholders, management, customers, suppliers, financiers, government and the community. Since corporate governance also provides the framework for attaining a company's objectives, it encompasses practically every sphere of management, from action plans and internal controls to performance measurement and corporate disclosure.

The corporate governance framework should recognise the rights of stakeholders as established by law and encourage active co-operation between corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises.

Shareholders:

One entire class i.e., the shareholders play a dominant role in the corporate governance due to the Board’s accountability to them (Hire and fire senior executives and approve or reject important policies and strategies of the firm).

The shareholders of any company have a responsibility to ensure that the company is well run and well managed. They do this by monitoring the performance of the company and raising their objections or giving their approval to the actions of the management of the company

Institutional shareholders have a responsibility to exercise their ownership rights, for example by entering into dialogue with companies based on a mutual understanding of objectives and play a role in corporate governance.

This is shareholder responsibility to see that directors are performing in the interest of the stakeholders and maximization of profits. They should check no malpractices are followed in the company.

Creditors:

On one hand, it can be said that the creditors are also contributing to the capital of the company, though it is debt capital, so they are also should be considered as investors and be a part of the investor ownership, which is one of the basic characteristics of a company

Although function of creditors is limited to the extent of giving money to the company and they pay attention only when the company misses any payment. They should more often be involved in company activities and decision making and protecting interest.

Auditors:

Corporate governance is very important in our business world today, especially after the frequent non-stop worldwide financial crises. Strong corporate governance is now considered a basic condition to accept and register an organization in most of the Stock Exchange Markets all over the world. The audit committee plays a major role in corporate governance regarding the organization’s direction, control, and accountability. As a representative of the board of directors and main part of the corporate governance mechanism, the audit committee is involved in the organization’s both internal and external audits, internal control, accounting and financial reporting, regulatory compliance, and risk management. This paper focuses on the audit committee’s powers, functions, responsibilities, and relationships within the framework of corporate governance.

This is responsibility of the auditors to check whether the company is complying with all the compliances and following good practices and not hampering the interest of any stakeholder and burst the fraud if any.

Auditors are essential to maintain corporate governance.