StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Overview of Corporate Governance in Relation to Company Law - Essay Example

Cite this document
Summary
This essay "Overview of Corporate Governance in Relation to Company Law" focuses on the rules, processes, or laws by which businesses are operated, regulated, and controlled. The long-term objective of having corporate governance is to ensure effective mechanisms…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER97% of users find it useful
Overview of Corporate Governance in Relation to Company Law
Read Text Preview

Extract of sample "Overview of Corporate Governance in Relation to Company Law"

?Critically discuss the main theories of corporate governance, focusing in particular on how they apply to different types of company Overview of Corporate Governance in Relation to Company Law Corporate governance has generally been referred to as “the rules, processes, or laws by which businesses are operated, regulated, and controlled”1. The long term objective of having corporate governance in place is therefore to ensure that effective mechanisms are put in place to ensure that failures in the governance of businesses are curtailed2. But as much as this a broad spectrum of definition given to corporate governance in the face of contemporary business governance, there could a rather isolated identity given to corporate governance in relation to company law. What this means is that corporate governance could be looked at from a perspective of the legal administration of different businesses. In effect, mechanisms and acts that would constitute corporate governance in one firm or business may not constitute corporate governance in another because of differences in the legal organization of the companies involved. Interesting, the demarcations that company law gives to the various forms of companies inform the basis of the existence of various corporate governance theories. With reference to company law, corporate governance could generally be seen as the legal mandate that binds players in various organizations and institutional set ups to ensure that companies meet the interest of all stakeholders, defined to include shareholders, customers, employees and the government3. Contract Theory and Corporate Theory Contract theory and corporate theory remain two of the major forms of theories of corporate governance. As indicated earlier, these two theories are directly related to the allocation and differentiations that exists in the types of business under company law. With reference to corporate theory, its principles could be dated to as far back as the era of “artificial” entity theory. The artificial entity theory dates back to the dates before the 1800s when governments made special legislations to ensure that the power to operate corporations was vested in the power and authority of public benefit units4. Some of these public benefit entities included schools, churches and the larger community. However, these public benefit units were not the outright owners of the corporations but the government. It is in light of this simulated ownership that the theory became known as the artificial entity theory. In relation to the present study, it would be noted that the corporate theory has a lot of influence on corporate governance in the sense that because the cooperation are supposedly owned by government, there are State defined legislations that affect and influence their operations. Though many who belong to the fiction theory school of thought hold that “corporations are simply legal fictions, created and sustained by an act of the state”5 and that there are weaker internal management principles that defeat the principles of corporate governance, the reality is that in a state where institutions are made to function properly, there is no way managers can expect to go away with lapses in corporate governance. Under contract theory, reference is made to contract-based corporate theory where actors in various companies and organizations are expected to play a collaborative role in ensuring that they use asymmetric information to regularize the construct of contractual arrangements6. In effect, the contract theory expects that managers and administrators would work and function as people who have been assigned to play specific roles within a specific timeframe for a specific reward. Essentially, contract theory greatly affects corporate governance because it is said to be an avenue by which managers and stakeholders in the running of businesses feel fundamentally obliged to work and operate within the premises of the contracts they agreed upon7. In certain quarters, this has been said to influence corporate governance negatively because it does not allow managers to functions and operate in the way they would technically do because they have to abide by a set of rules that was not initiated by them8. There is also a school of thought that believe that the elements of contract theory makes corporate governance more effective because those under contract would have to manage their companies in an effective way that would ensure their continuous stay in office. Application of Corporate Governance Theories in managing different types of Companies From the discussions above, it would be noted that the two different types of corporate governance could be streamlined to different types of companies. For instance the corporate theory works well and perfectly for State owned companies and companies with public interest9. This is because apart from the fact that State owned companies are generally regarded as corporate entities, the law and legal system that bring them into existence provides that these companies do not operate with absolute ownership being claimed from the dominion of the government10. Meanwhile, contract theory is highly suitable for family-owned businesses and other forms of private companies. This is because the principles of contract theory ensures that these families and private owners who undertake personal investments, get the chance to undertake stricter monitoring of their companies by virtue of the contract that are provided to managers and administrators. In conclusion, contract theory is more suitable for instances where there needs to be strict monitoring as a tool for achieving investment results whiles corporate theory is generally recommended in cases where there are external legislations binding the regulation of companies. REFERENCE LIST Dan-Cohen, M. Rights, Persons, and Organizations. University of California Press, Berkeley, 2006, 5. Bedeian, A. and Zamnuto, R. Organizations: Theory and Design. Dryden, Chicago, 2001, 9. Ewick, P. "In the Belly of the Beast: Rethinking Rights, Persons and Organisations" (2008) 13 Law & Soc Inq 175, 179. Cyert, R. and March, J. A Behavioral Theory of the Firm. Englewood Cliffs, Prentice-Hall, 2003, 27. Ruben, D. "The Existence of Social Entities" (2002) 32 Philosophical Quarterly 295. Daft, R. Organization Theory and Design. 4th ed., West Publishing Co., St Paul, 2002, 10. Dewey, J. "The Historic Background of Corporate Legal Personality" (2006) 35 Yale LJ 655, 673. McDonald, M. "Should Communities Have Rights? Reflections on Liberal Individualism" (2001) 4 Can J of Law & Juris 217, 219. Stokes, M. "Company Law and Legal Theory" in Twining, W. (ed). Legal Theory and the Common Law. Basil Blackwell, Oxford, 1986, 155, 162. Rouse M. (2008). Corporate Governance. [Online] September 18, 2012 Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Critically discuss the main theories of corporate governance, focusing Essay”, n.d.)
Retrieved from https://studentshare.org/law/1457307-critically-discuss-the-main-theories-of-corporate
(Critically Discuss the Main Theories of Corporate Governance, Focusing Essay)
https://studentshare.org/law/1457307-critically-discuss-the-main-theories-of-corporate.
“Critically Discuss the Main Theories of Corporate Governance, Focusing Essay”, n.d. https://studentshare.org/law/1457307-critically-discuss-the-main-theories-of-corporate.
  • Cited: 0 times

CHECK THESE SAMPLES OF Overview of Corporate Governance in Relation to Company Law

The Problems Surrounding Corporate Governance

The article will study various aspects of corporate governance to conclude that the problems perceived in today's corporate governance may not be entirely rooted in the peculiar nature of corporate.... This essau declares that the recent economic crises and scandals have forced much expert attention on the system of corporate governance, its regulations, leading to the public disclosure of many of the financial figures associated with the processes.... Despite some line of thinking that did not put the shareholders entirely above the line of guilt, it is more or less certain, that in majority of the cases the shareholders are mere bystanders, and do not have the power or the status to handle or interfere in the corporate governance, though it is certain that their investments are considered as playing a dominant role....
20 Pages (5000 words) Essay

Rethinking Corporate Governance

This essay "Rethinking Corporate Governance" discusses corporate governance as essential in any organization and thus a hypothesis can be developed as a result stating that the existence of effective corporate governance in a company leads to a higher chance of success of the business.... This topic brings about a number of issues such as the quality of corporate governance, which will be determined by individuals that are involved in this activity and the qualifications that they possess to handle this responsibility (Khalid, 2011)....
2 Pages (500 words) Essay

The Corporate Governance

In a partnership, members "associate," forming collectively an association in which they all participate in management and sharing profits, bearing the liability for the firm's debts and being sued jointly and severally in relation to the firm's contracts or tortuous acts.... The movement towards a worldwide capital market could, in turn, have a substantial impact on corporate governance in individual countries.... A private company cannot apply to have its equity traded on a stock exchange, and debates about corporate governance in the United Kingdom have focused almost exclusively on companies that are publicly quoted....
7 Pages (1750 words) Article

Agency Theory and Rise of Corporate Governance Globally

In this case, This paper attempts to find the relevance of agency theory in explaining the rise of corporate governance worldwide.... The starting point for this paper is to give the different accounts of the rise of corporate governance using various reliable sources.... The chosen frameworks will then be compared with the agency theory in order to establish which of the three frameworks best describes the rise of corporate governance.... here are various factors that can be used to explain the rise of corporate governance....
9 Pages (2250 words) Essay

Principles of Corporate Governance

This paper will discuss the Enron case and research academic literature to evaluate the amendments to the code/legislation and determine whether they will resolve the issues of corporate governance as well as assessing the effectiveness of the changes.... he most notable causes of Enron's downfall were associated with corporate governance, revenue recognition, special purpose entities and mark-to-market accounting.... For the purpose of discussion, an overview of the Enron Scandal and the Sarbanes-Oxley Act will be given, followed by the evaluation of amendments to the code/legislation....
11 Pages (2750 words) Essay

Corporate Ethics and Governance

The author of this coursework "Corporate Ethics and Governance" describes the main aspects of corporate ethics.... This paper outlines brief description of the problem, claims of Friends of Earth, the response of the company, influence of ethical theories, description of corporate social responsibility applied in the particular company.... On the other hand, it could be stated that the size of the company is decisive regarding its behavior towards the environment....
13 Pages (3250 words) Coursework

Issues of Corporate Governance

Company law in the UK does not mandate the publishers of annual reports to explicate their company's overall performance in relation to the welfare of general public and environment, which is seen as an evasion of responsibility by some ethicists (Wheeler, p.... The paper "Issues of corporate governance" discusses that it is quite clear that it is not enough for companies to cater to the needs of those who have staked their capital.... A closer look at the constituent elements of corporate annual reports indicates whose interests they serve....
8 Pages (2000 words) Coursework

Corporate Governance and Accountability at Marks and Spencer

The modern UK corporate governance regulations and frameworks for acceptable governance behaviours are founded on the Anglo-American model of corporate governance.... The modern UK corporate governance regulations and frameworks for acceptable governance behaviors are founded on the Anglo-American model of corporate governance.... The modern UK corporate governance regulations and frameworks for acceptable governance behaviors are founded on the Anglo-American model of corporate governance....
9 Pages (2250 words) Case Study
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us