The wellbeing of any corporation is dependent on the nature of governance that is being utilized in the corporation (Clarke 2007, pp.9-11). The two main models of corporate governance are the coordinated model and the liberal model. The liberal model is sometimes referred to as the Anglo-American model of corporate governance mainly because it is commonly found in American corporations as well as most firms in western Europe. The liberal model is less restrictive and tends to empower the top management in corporations. Thus the entire stakeholder pool is not equally engaged in the coordination or management of the organization.
The coordinated model is common in most parts of continental Europe as well as Asia and a good number of African firms. This model tends to exhibit a fair distribution of power among all the stakeholders. In ideal terms, the powers of the Chief Executive of a corporation are not supposed to make him or she overrule the wishes of the customer or the supplier. In this model, the employees in firms are given a voice and their interests are fully catered for. The customers, the society in which the corporations operate as well as the people who supply items to the organization are given a voice under the coordinated corporate governance model. Who are these stakeholders that are being referred to in this essay?
The stakeholders in a corporation are the parties that are involved in the day-to-day running of the organization. In modern times, the stakeholders in a corporation have become the entire community; which is the internal and the external parties of the corporation. In specific terms, the shareholders, the chief executive officers, the managers, the other junior employees, the suppliers, and the customers are stakeholders in a corporation. Others include the suppliers, the society in which the corporation is situated, and the government. All these elements of the stakeholder pool take part in corporate governance. Is corporate governance an important element of incorporation administration?
There is no element in the administration of a corporation that is as important as corporate governance. The very existence and smooth operation of a corporation are dependent on the nature of corporate governance. The objectives of the corporation can only be achieved if the corporate governance of the entity in question is credible (Clarke 2007, pp.12-14). This is because all important decisions that determine the operational success of the corporation are a direct product of corporate governance. For a business entity, profits can only be made when the administration can make sound business decisions that avoid losses.
The major characteristics of successful corporate governance include wide consultations before decision making, the accordance of respect to all stakeholders regardless of the position in the chain of command, and the observation of merit in the hiring of workers for the corporation. Good corporate governance also empowers employees through continuous training especially in new technologies, pays attention to government regulations, and formulates and implements a comprehensive corporate social responsibility strategy as a way of giving back to the community. On the other hand poor corporate governance is known through the disrespect to junior members of the stakeholder pool by their seniors, the making of decisions by the top management without consulting the other stakeholders, and the absence of a well-designed corporate social responsibility strategy. There is also a lack of harmony between government regulations and corporate principles. Corporations with this type of governance end up collapsing. The demise of big American corporations such as Enron and WorldCom is a direct product of poor corporate governance (Hamilton 2003, pp.3-4). Enron in particular went collapsed mainly due to failed corporate governance characterized by irresponsible practices especially in accounting (Fusaro & Miller 2002, pp.23-25).
In conclusion, corporate governance determines the level of success of a corporation. Sound corporate governance leads to high levels of success while poor corporate governance leads to poor performance. Good corporate governance is inclusive and well structured.
- Clarke, T., 2007. International Corporate Governance. New York: Routledge.
- Fusaro, P. & Miller, R., 2002. What Went Wrong at Enron: Everyone’s Guide to the Largest Bankruptcy in U.S. History. New York: Wiley.
- Hamilton, S., 2003.The Enron Collapse. Lausanne: International Institute for Management Development.