Question

In: Finance

which area of concern in corporate finance is the most difficult to address

which area of concern in corporate finance is the most difficult to address

Solutions

Expert Solution

The area in corporate finance which is the most difficult to address is the issue of corporate governance in major coroprations across the globe. Every now and then when something goes wrong and suddenly a company defaults or goes bankrupt, most people look for lapses in the corporate governance structure but we don't try to look at corporate governance board before these issues arise. We should look to strengthen the board to take proactive measures to avoid such issues.

The corporate governance issues arise because the people who are on the board to represent the shareholders interest often have conflict of Interest. Some people have direct or indirect business relations with the company, some board members are close to the senior management of the company and some have been in the past a part of the management and they are on the board.

When the members of the board have conflict of Interest, It becomes difficult for them to work in the full interest of the small shareholders. One recommendation from time to time has been more than two third of the members on the board should be outsiders. This has reduced the corporate governance issues but not eliminated away completely. An effective corporate governance is also important for the long term sustainable growth of the company, senior managment should be held accountable for their decisions to the board.


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