corporate Governance conceipt

Corporate Governance has now become an international topic. The Cadbury report defines Corporate Governance as the system by which companies are directed and controlled (Cadbury Report, 1992:5). This concise explanation clearly broadens what Corporate Governance implies and the precise roles that leaders in charge of an organization have to undertake in order to foster best practices. However for most companies, the leaders are the Board of Directors (BODs) who has the mandate to decide long-term strategies putting into consideration the interests of shareholders and various stakeholders (Souster, 2012:1). An efficient, effective and accountable BODs is not only essential to every company but is now demanded by the Code of Corporate Governance in almost all civilized jurisdictions of the world (Kunle, 2013:21). In support of Kunle’s view, Renée, Hermalin and Weisbach, (2010:96) argued that because of corporations’ enormous share of economic activity in modern economies, the cost of their agency problems is extremely important. One could say that the principal/agent problem between managers and shareholders is most effectively resolved by shifting decision-making out of the hands of the agent (managers) and back into the hands of the principal (shareholders) through the Board. Therefore, (Martín & Herrero, 2018) appreciating the role of Boards is vital both for understanding corporate behavior and setting of policy to regulate corporate activities that may positively impact on organizational performance. Hough,(2009:1) appends the above argument when he contends that the occurrence of various corporate scandals like Enron, WorldCom and Maxwell Communications demonstrated that the issue of Board understanding of, and influence on performance of organizations they govern is a matter of great importance. He further noted that after the occurrence of these corporate scandals, the common refrain among commentators was; ‘Where was the Board in all this?’, ‘How could the directors not have known what was going on?’ and ‘Why didn’t the Board intervene?’ Due to these repeatedly asked questions, the world was compelled to acknowledge the profound impact of Corporate Governance and the Board in an economy.

In support of the above, Solomon and Solomon (2004:45-56) observed that the UK advanced to Corporate Governance practices by publishing various Corporate Governance reports such as; the Cadbury Report (1992), Green bury Report (1995), Hampel Report (1996), Turnbull report (1999), Higgs report (2003) and Smith Report (2003) that recommended best Corporate Governance practices to enhance company performance and shareholder satisfaction. It was observed that these reports were combined to form the UK governance code known as the combined code, (2003) that acts as a guide to the governance of an organization. In addition, Kunle, (2013:27) argues that the UK Code 2012 guides on the role of the Board as it provides that: “Every company should be headed by an effective Board which is collectively responsible for the long-term success of the company. The US also responded to Corporate Governance challenges by establishing the Sarbanes-Oxley Act (SOA) 2002 that set new requirements for all Public company boards, management, and public accounting firms. Boards have clearly been put in the spotlight as the Act provides for the accountability of company executives and members of the Board when undertaking their roles (Jahmani and Dowling, 2008:34). In agreement with this development, Deloitte, (2015) noted that Boards in the US are presently showing signs of a strong recovery and are tasked to clearly communicate to organizations’ key stakeholders; from shareholders who want more transparent disclosures to stakeholders who want assurance that the organization shares their values and is a good corporate citizen.