Question

Governance and Fraud Question.

Corporate governance.

Drawing only on agency theory comment on how best to design,

1.     A remuneration package for a company's CEO. (students might make reference to principal 8 of the ASX corporate governance guidance).

2.     Drawing on stakeholder theory, discuss the purpose of principle four of the ASX corporate governance guidance.

Answer 1

1) As put forward by ASX corporate governance guidance, remuneration of CEO of a company must be designed in a fair and responsible manner. This involves sufficient salary structure for attracting high-quality directors to the company and consequently, focusing on attracting and retaining them by designing an appropriate remuneration. Furthermore, the responsibility should also be to encourage these directors, coordinate their interests with values, and risk appetite of the company.

2) According to stakeholder theory, organizations are considered a collection of various individual groups having varied interests. These interests altogether represent the spirit of the entire organization. Thus, businesses must consider the interests of such individual groups and cooperate with them before undertaking any decision. This has been stated in the principle 4 of the ASX corporate governance guideline, which provides that a listed company must always emphasize on developing appropriate processes for evaluating the integrity of its corporate reports that directly affect the stakeholders.