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In recent years, Corporate Governance acts as a vital role in every business sectors including government, private and public sectors as it acts as a tool which provide the assistance for these business sectors to meet the satisfaction of both shareholders and stakeholders (Mallin 2010) and fairly present the annual report to the public. Before discussing more in details about corporate governance, its functions and effects to business sector, it is very important to know the meaning corporate governance in order to give basic information and idea for the readers to have more understanding. The definition of Corporate Governance was defined in various definitions such as the set of rules that the corporation apply to manipulate its organization (Wikipedia 2011), the set of rules that the corporation apply for making decision in running its business in order to serve people in the organization and also eliminate the conflicts within the organization (Gill 2008), set of policies which apply in internal of the organization by applying good business practices, objectivity, accountability and integrity in order to ensure that the demands of shareholders and stakeholders can be accomplished (Corporate Governance Definition 2010), the system which apply to monitor the business which states the responsibilities of both shareholders and stakeholders (Enquist 2010) and so on.
As the above mentioned about various meaning of Corporate Governance which defined by various scholars, it can be concluded that it is a set of norms, policies, rules and systems which the corporation set up to regulate its organization to satisfy both shareholders and stakeholders. Next let discuss about the reason of why corporate governance is important to every business sectors in today's business. Corporate Governance was actually emerged since many years ago but it was become widely accepted in worldwide business since 2001 after the collapse of well known companies such as Enron and MCI Worldcom. These companies were failed to transparent its position to outsiders which affected to the bankruptcy of the companies themselves and also the downturn of world economic. After this incident, the corporation has perceived the importance of corporate governance as its objective is not only maximize benefits for shareholders in long term operation but one of its main objective is to emphasize on corporate ethics, accountability, transparency and disclosure it financial statement in order to ensure that both regulators and investors have fully transparency and accountability towards the position of the corporation (Gill 2010). Corporate governance also emphasize on the internal control of the corporation to ensure that its operations, assets and equity and the overall of corporation have been safeguarded and foresee more the importance of International financial accounting standard (IAS), auditing standards and independent auditors (Enquist 2010). Moreover, corporate governance can help prevent the over powerful of single individual (Mallin 2010). Referring to the text book of corporate governance by Christine A. Mallin mentioned about the theories which assisting the development of corporate governance which are Stakeholder theory, Agency Theory, Transaction cost economic theory and Stewardship theory. Stakeholder Theory stated that the corporation should not only emphasize and improve on the benefits of shareholders but also consider for the benefits of wider stakeholders which are employees, suppliers, customers, social communities, government and so on. By considering on the benefits of stakeholders, the corporation needs to set up the objective and policy to determine the strategies which enhance the benefits of stakeholders and have ability to accomplish its objective in long-term operation. Transaction cost economic and Stewardship theory are quite focus on the benefits of shareholders rather than stakeholders and they relate to one another as it mentioned that the owner should give authority to manager to take managerial action in order to reduce over powerful of individual. This also supported by to other chapters in the text book which mentioned about Family-owned Firms which is the widespread form of business in many countries, the text book stated that the ownership and authority in making decision and running business is centered only in family members, the chapter stated that good governance firms need to get involves by the outsider to help delegate the power of decision making and segregate line of responsibility. And also the chapters which mentioned about Directors and Board Structure and Director's Performance and Remuneration, these two chapters also recommend the corporation to separate the role of management of chairman and Chief executive so that the corporation can reduce the over powerful of single individual and also overpayment to the top position with low performance. They are similarly to Family-owned Firms that recommend the corporation to involve independent non-executive to the committees in order to fairly monitor the overpayment of salary of the executives. By getting involves from the outsiders and other independent non-executive, the corporation is able to fairly, transparency and accountability presents its position to the stakeholders. On the other hand, the corporation itself will get benefit from knowledge, experience and perspective which contribute by other independent non-executives. However, there might be a drawback for the delegation to others non-executives that they might not devote themselves to maximize profit of the corporation but just do their duty and focusing on their own interest under bounded rationality so Agency and Transaction cost economic agency regard the board of directors and other agents to act as a tool to monitor of non-executive to be well-performed (Mallin 2010).
From the above section, it can be concluded that the objective of corporation is to maximize shareholder profits and values so that they have ability to persuade and maintain equity investment, together with maintaining the interests of stakeholders and accomplish sustainability of its long-term operations and concurrence the main points of corporate governance which are transparency, disclosure, accountability and also highlighted on the contribution of independent non-executive (Mallin 2010).
Another important point to be discussed under the topic of Corporate Governance is Corporate Social Responsibility (CSR) which was mentioned in many articles of various scholars. CSR is defined as a concept which combines social and environmental concerns in the business operations and in their interaction with the collaboration of stakeholders including investors, customers, employees and community on a voluntary basis (European commission 2010). In the past decades, the corporation was focused only on the self-interest of its business but after the post-Enron years, the corporation alters the structure of its system and attitudes toward business. Corporate Social Responsibility (CSR) perceive corporate governance as a framework to integrate social and environment concerns to the business sector which benefit both shareholders and stakeholders. The corporation is more environmental friendly operates its business and respect more on the human rights. This can be viewed that corporate governance has successfully connected business practice with public policies which are stakeholders-friendly much more than before as it emphasizes on the consideration of corporate ethics and provide transparency and accountability information to stakeholders and balance the benefits of both shareholders and stakeholders by equally treat employees, consumers and community as shareholders in order to harmonize business sectors with public, environment and social needs (Gill 2008). By implementing CSR, most of corporations apply a pyramid of CSR commitment as a basic standard which created by Carroll (1991). There are four stages of pyramid which are first the bottom of the pyramid stated of Economic stage, the foundation to create profit to the corporation, second Legal stage, the corporation should pay respect and follow the law of regulation, third Ethical stage, the corporation should conduct its business with the consideration of ethic and moral and the last top stage is Philanthropic, the corporation needs to act as a good corporate citizen by sharing their wealth and contributing to social community (Enquist, Johnson and Skalen.2006 and Connextion 2010). This also supported by another article which mentions that the corporate governance should be regulated by the corporation itself regarding to the core value of corporation and how the corporation is monitored and law is considered to be one of the parts of social responsibility which corporation should be reached to the standard of law and ethics (Roberts 2001)
When discussing about corporate governance and CSR, the word that should be concerned is Socially Responsible Investment (SRI), it is an approach of making investment decision which consider about corporate responsibility of ethical, social and environmental issues and it works to develop wealth in the communities and build sustainability in long term (Social Investment Forum 2011) and act as an index to measure the level of CSR (Mallin 2010). There are three basic strategies of SRI which are first Engagement which convince the corporation to develop its policies concerning with ethical, social and environment. Second Preferences which manager work according to the guidelines in order to meet trustee's satisfaction (Mallin 2010) and third Screening which is the evaluation of corporation's performance towards social, environmental, good corporate governance and well CSR performer. Normally the institution investors prefer to invest in the corporation that contributes itself to social community (Social Investment Forum 2010). Thus it is very important for the corporation to give attention to the values of stake in social experience so the corporation needs to realize which values that influence and how to apply into the organization's culture and also social structure and also know what way that may leads them to be weakened or undermined (Selznick 1996).
From the above discussion, it can be concluded that Corporate Governance and Corporate social responsibility relate to each other as both of them aim to achieve the same objective as to maximize interests of both shareholders and stakeholders by considering of social and environment. The corporation needs to concern more on social responsibility, moral and business ethics which include practices and behaviors that come from religion, education, family, society, career and so on. The development of corporate governance is a worldwide incident and complicated as it comprised of legal, cultural, ownership and so on. Moreover, the principles of corporate finance may different in various countries as they have their own unique legal, cultures and communities so they have to adapt the principles which best appropriate for each countries. The good governance corporation can assist its organization to prevent the corporation failure as it is fairly presented its position in the financial statement so if there is a sign of economic downturn or operation failure, the corporation will be able to aware of the downturn or any misstated within time. As the effects of the collapse in listed companies may cause the result of economic downturn so good corporate governance can help prevent economic crisis accordingly. Moreover, as the institutional investors prefer to invest in a good corporate governance corporation so this help attract both local and foreign investors to raise its capital markets.
Corporate Governance in Asia
By Stephen Y.L. Cheung* and Bob Y. Chan
As the Corporate Governance acts as a vital role in business sectors and also has been widely used after the Enron years by the corporation worldwide especially for developed countries in European countries. This journal wrote about the emergence of corporate governance in Asia-Pacific regions which are Malaysia, the Republic of Korea, Thailand and Hong Kong China. Corporate governance raised the attention in Asian countries in the late 1990 after the Asian currency crisis. Corporate governance perspective of these countries is quite similar to those in European countries which refer to the system of behavior which the corporation applies to control and direct its operation. The main objective is to prevent the investors to misinterpret the financial statement, improve capital market and encourage investment from foreign countries in order to receive funds for long-term economic development. The cooperate governance in Asian countries was leaded by the Organization for Economic Co-operation and Development (OECD) and it first mainly focused on shareholder values and latter three basic concepts which are first the delegation to take managerial action of directors and managers, second the disclosure of financial information which deliver by accounting profession and third the reasonably of remuneration of executives. The code of conducts for the corporate governance in Asian require to maximize shareholder equity as the primary concern, involve independent non-executive directors to reduce the problem of over powerful of individual and delegate responsibility, overpayment remuneration of executives and encourage institutional investors to participate in monitoring management section as the delegation of authority of executives may reduce the management performances as they may satisfy on their own interests rather than the profits to the company and lastly highlight on high qualification for the disclosure of financial statements in order to present fairly, transparency, accountability and trustworthiness to the investors.
From the reflection of this journal, Asia-pacific regions have to continue developing corporate governance as it only focus on the benefits of shareholder and put so much efforts to improve its local and regional capital markets and seeking higher level of foreign investors but the main objective of corporate governance which widely accepted in worldwide is the corporation needs to maximize both interests of shareholders and stakeholders by considering of corporate ethics and provide transparency and accountability information to stakeholders and balance the benefits of both shareholders and stakeholders by equally treat employees, consumers and community as shareholders in order to harmonize business sectors with public, environment and social needs. As a result, these Asian countries have to emphasize more on the contribution communities as nowadays investors prefer to invest in the corporation that contributes itself to social community.