Corporate governance refers to the way in which the company is directed and controlled in order to achieve its strategic and operational goals. Corporate governance ensures a high standard of accountability at all levels of the organisation. It is all about management of business styles, monitoring and controlling business activities, accountability to stakeholders and the degree at which stakeholders can influence the decisions made by the company's representatives. Corporate Governance has following learning styles to direct and control company's management functions and work efficiently.
* Review basic concepts of time value, project and firm valuation, capital budgeting, risk-reward, market efficiency.
* Review market structures, short and long-term equilibrium, competition, normal and excess profit, barriers to entry, monopolies.
* Identify how choice of capital structure can affect various stakeholders and these stakeholders' response.
* Understand how the choice of capital structure and investment decision can affect the value of assets.
* Understand the role of contracting and monitoring in addressing the agency issue and the challenges that exist for efficient contracting.
* Challenges of corporate governance for mergers, acquisitions and takeovers
Various business correlations with Corporate Governance
Corporate governance takes shape of many correlated and interrelated business activities which influence and control whole business process and define accountability internally and externally at all levels of business management.
Stakeholders and Corporate Governance
The company has accountability towards their various stakeholders such as shareholders, employees, accountant and financial consultant, Suppliers, business unions, agencies, regulators etc. The management decisions and actions are influenced by shareholders, employees, accountant, suppliers, customers, bank-building society on daily basis with proper disclosure of relevant information, accounts and financial statements. Corporate governance system should protect and facilitate shareholder rights. The system should facilitate equitable treatment to all shareholders, including minority and foreign shareholder. Corporate Governance should recognise the rights of stakeholders established by law or mutual contract and encourage co-operation between the corporate and the stakeholders to create value. Corporate Governance should review employees' salary, bonuses, and performance-based long-term incentive compensation such as share options. Strategic decisions by top-level managers are complex, non-routine and affect the firm over an extended period Other variables affect the firm's performance over time such as unpredictable economic, social or legal changes. Product market stakeholders Customers, suppliers and host communities may withdraw their support of the firm if their needs are not met, at least minimally Organisational stakeholders, Managers and non-managerial employees similarly may withdraw support, reduce their work effort or even quit Effective governance produces ethical behaviour in the formulation and implementation of strategies Governance mechanisms and ethical behaviour. The management should understand role of contracting with agency and monitoring agency issues and conflicts. The management is accountable to keep informed every development, innovation, leveraged technological issues and changes in regulatory framework to its agencies. It remains difficult or expensive for the Corporate to verify that the agent has behaved appropriately. The agent sometimes exercises managerial opportunism, which is the seeking of self-interest with guile Managerial opportunism prevents the maximisation of shareholder wealth Problems of the agency relationship , however corporate should understand trade off between agency relationship and cost factor. It is also very necessary for the corporate to have satisfactory control and enforcement of good governance through independent regulators and other bodies. Through regulatory framework, the company can have efficient protection against insider trading and abusive self-dealing. The company can set up independent directors and independent arbitration panel for market related conflict resolutions.
Investment Decision and Corporate Governance:
The most of the company takes decision for their investment depending upon their regular routine requirement for different segments of investment. Every company has different set of standard procedure and different set of rules and regulations. The management should disclose foreseeable risk factors to stakeholders in any investments. The company's management has to trade off between potential risk and return from particular investment. Investment decision makers (top management) and marketing and operation managers (Middle management) have to comply and direct a link between proposed investment budget and completion of project. Good corporate governance doesn't encourage any communication gaps from top to bottom level of management hierarchy. Therefore Good Corporate governance influence whole process of investment cycle and create active market participates. The top management has to comply with both productive and non-productive investment planning in order to satisfy company's stakeholders and increase creditability and market share among investors.
Performance Evaluation and Corporate Governance
Good corporate governance has to have transparency of business standards and procedures for performance evaluation. The transparency may refer to comprehensive disclosure of all financial information and timely disclosure of share-dealings by insiders and controlling shareholders. Corporate governance system should ensure timely and accurate information about financial situation, performance, ownership and governance. Good Corporate Governance should have clarity and comprehensiveness of the information and equal distribution of information to all shareholders in order to avoid any disputes in company. Superior performance results in development in the company and increase significance of improvement of company's valuation. The management has to develop some strategies in order to control management functions and encourage business performance. The management has to keep track record in innovation and development in different segments of company and disclose among stakeholders. Corporate Governance should evaluate its leadership in global market and its potential growth in global markets in order to maintain favourable market share.
Mergers, Acquisitions, takeovers and Corporate Governance
Corporate Governance is essential to merge, acquire or takeover a company. In absence of good governance, mergers and acquisition process may break down. Individuals and firms buy or take over undervalued corporations. Ineffective managers are usually replaced in such takeovers. The threat of takeover may lead firm to operate more efficiently. Managerial defence tactics increase the costs of mounting a takeover. These tactics may involve: Asset restructuring through divestments Changes in the financial structure of the firm such as repurchasing shares, Mobilising shareholders not to approve takeover, etc
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