Question

1. Briefly explain the history of corporate governance.

2. What is the role of the BOD and what are their responsibilities?

3. Why do you believe the Stakeholder Model of Corporate Governance has become more popular than the Shareholder Model?

Answer 1

Corporate governace is the system by which business corporations are directed and controlled.

Corporate governace is formed after a lot of scandals and loss of ethics, greed for earnings,ineffective boards etc etc.

Some scandals in USA are Enron,TYco,worldcom etc.

So corporate governece is formed to protect stakeholders interests.

Different countries follow different corporate governace structures.

Different approaches in corporate governance are Stakeholder Model ,Shareholder Model.

Role of Board Of Directors:

Establish Mission and vision and values

Policy Making

Set strategy and structure

Decison Making

Delegate to management

Share holder Model of CG:

It is given by Milton Friedmann.

Sole responsibility is to increase profits of a business.

Total interests rest with shareholders, main goal is to generate income and satisfy share holders as they are important

Stakeholder Governace:

A company owes a responsibility to stake holders other than solely share holders.

Stakeholder Model of Corporate Governance has become more popular than the Shareholder Model because we have seen examples of companies  Enron and Worldcom where continuous pressure on managers to increase returns to shareholders led them to manipulate the company accounts and bad practices.

So Stakeholder Model of Corporate Governance is popular.