Importance Corporate Governance And Its Issues And Concerns Accounting Essay


Corporate governance is the systems by which companies are directed and controlled. It is concerns the relationships among the management, Board, shareholders and other stakeholders Hence, it is about the way or how the boards oversee the operation of a company by its manager, and the accountability of the board members to the shareholders and company and its transparency.

1.2 The Important of Corporate Governance

1.2.1 Key Element to Attract Investors and Enhance Their Confidence

'Investor Relation (IR) plays an important role in attracting investor confidence and good governance in Malaysian companies [3] '. Better corporate governance provides investors a timely dissemination of reliable, full and accurate information relates to the company. If OneFamily Berhad has promoted the open disclosure policies, they are able to attract more investors and enhance their confidence in investing in their expansion plans [4] . So, the business will have support from its investors and will be more sustainable.

1.2.2 Easy to Raise Capital

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Good corporate governance can raise capital more easily and cheaply in the market where capital is a scarce resource. Since the board is going for listing, they need a high cost of planning and launching an Initial Public Offering (IPO). The process is tedious and need to comply with regulatory requirement. Hence, the process may involve many parties and some of the cost may incur [1] . Besides that, OneFamily Berhad also needs capital to fund the expansion plans. If the company adopts good corporate governance, they are able to raise fund easily from the investors.

1.2.3 Prevent Corporate Scandals

Much country emphasis on corporate governance is because of the high-profile corporate scandals [2] , globalization and increased investor activism. Financial malpractice [3] may cause the corporate scandal. Good governance promotes open disclosure policies, timely dissemination of reliable, full and accurate information to all players and accountability. If OneFamily Berhad adopts good corporate governance, they can prevent from the corporate scandals through transparency of financial statement and open disclosure policies and to increase their reputation.

1.2.4 Long Term Sustainability

Corporate governance contributes to sustainable economic development of the company. It can be done by enhances the company performance and increase their access to outside capital. Well governed company usually accountable and transparency to its shareholders and other stakeholders. So, basically they are more sustainable compared to weak corporate governance company. Improve in internal control system will ensure the quality decision making of company. Since OneFamily Berhad decided to diversify their business in other industry, what they need is the long term sustainability of the business and to gain competitive among their investors.

1.2.5 Protect Shareholder Right

Corporate governance protects the right of shareholder by enhance disclosure and transparency. It addresses the agency problem throughout a combine of company law, stock exchange listing rules and self-regulatory codes. Since OneFamily Berhad going to be listed in Bursa Malaysia, the director needs to act bona fide and accountable for the success of company and maximizing shareholder's wealth as director has owed their duty to company and shareholder. Better corporate governance ensures that shareholders are sufficiently informed on decision concerning fundamental issue. Hence, shareholder right can be protected by transparency of the financial statement and timely and accurate disclosure of information.

1.2.6 Build Reputation and Brand Image

Good corporate governance plays essential role in underpinning the integrity and efficiency of financial market, and enhances the reputation of the company. Good reputation enhances profitability of the company because it attracts customers to products, investors to securities and employees to its jobs. Besides, company behave ethically and governed in a good manner builds a reputational capital which is competitive advantage. If OneFamily Berhad adopts good corporate governance, they are able to increase their reputation and brand image of the company. Hence, they able to attract more expertise (employee) work for them in the monkey-breeding farm and animal testing laboratory. On the other hand, good corporate governance also helps them to attract local and foreign pharmaceutical (customer) and public (investor) to fund in the business.

2.1 Unbalanced of Board

2.1.1 Board Composition

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The board should include a balance of executive directors, non executive directors and independent non executive directors [1] and at least one-third of the board membership should be made up by independent non-executive directors [2] . Since the whole board is made up by the Lakitua's family members and no independent directors in the board, the board is ineffective. The company may fail to provide the necessary balance on board's view and the interest of the stakeholders and fail to make independent judgments. Moreover, it may lead to ineffective leadership; the executive directors may maximize their own interest rather than the interest of the company.

2.1.2 Chairman of the Board cum Chief Executive Officer

Chairman is the leader of the board of directors who oversees the whole board whereas CEO [1] is the senior executive director who oversees overall management and operation of the company. Thus, role of chairman and CEO should not exercised by the same individual [2] . Lakitua is the chairman and the CEO; therefore, he may have an excessive concentration of power on the decision making and allow he made decision on his own interest and at the shareholder's expenses. In addition, Lakitua have no proper checks and balances [3] in his lines of authority and may sway decision making anytime and misuse of power empowered by the other board members. It means he has overriding of controls and not independent from the operation.

2.1.3 Appointment of Directors

Appointment of the new directors to the board should be a formal and transparent procedure. The recommendation to the board is carried out by nominating committee [4] . Since the company does not have nominating committee, procedure of appointment of the directors is unable to carry out as formal and transparency. OneFamily Berhad may fail to make a suitably qualified candidate to fill in vacancy to maintain board balance.

2.1.4 Remuneration Policy

Every board should appoint remuneration committee which consists wholly or mainly of non-executive directors [5] . The duty is to recommend to the board on remuneration of the executive directors based on their performance [1] or linked to expertise, experience and responsibility level [2] . Since the remuneration of the directors is decided by Lakitua in consultation of Binimuda, the remuneration policy is unbalanced and may excessive compensation. The process may cause the conflict of interest and lack of objectivity. In addition, it may have no transparency and less accountability to shareholders and investors and it will reduce their confidence.

2.1.5 Company Account

The company accounts are audited by external audit firm which has related party transaction with OneFamily Berhad. The transaction may not transparency and the company is not independent. It may affect the investors' confidence on the quality of financial statement. Besides that, it will also affect the sustainability of the company as the reputation drop and less capital contributed by investors.

2.1.6 Professionalism or Qualifications

2.2 Corporate Social Responsibility

Corporate social responsibility refers to the decision making link to ethical value [3] , compliance with the legal requirement and respect for people, communities and environment. OneFamily Berhad meets the issue of ethics of animal testing as they plan to invest in the animal testing laboratory. Animals have the same right to life as human beings, so it is not worth for the benefit of mankind. Many animals are forced live isolated in small cages and are subject to poisoning, burning, painful surgeries and periods without food and water.

2.3 Internal Control System and Risk Management

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Internal control system provides reasonable assurance regarding the achievement of objective [1] . OneFamily Berhad is family run organization, the directors are not business studies educated and no board committee in the company, it may fail to maintain a sound system of internal control to safeguard shareholders investment and accountability of company asset. Therefore, they have weak general control and the risk [2] will be higher. The company may fail to maintain reliability of internal and external reporting for management decision and process that generate a flow of timely, relevant and reliable information. In addition, it may fail to compliance with laws and regulations to avoid public scandals as poor internal control system.

right attitudes, integrity and competence, and monitoring by managers. Effectiveness and efficiency of operations

2.4 Investor Relation