In the last few decades, we have seen the collapse of high-profile companies, partly owing to...

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In the last few decades, we have seen the collapse ofhigh-profile companies, partly owing to the weaker corporategovernance mechanisms. This implies that corporate governancerelates to only large public enterprises and is thereforeirrelevant for small business. Discuss this assertion.

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Corporate governance is the collection of mechanisms processes and relations by which corporations are controlled and operated Governance structures and principles identify the distribution of rights and responsibilities among different participants in the corporation such as the board of directors managers shareholders creditors auditors regulators and other stakeholders and include the rules and procedures for making decisions in corporate affairs Corporate governance is necessary because of the possibility of conflicts of interests between stakeholders primarily between shareholders and upper management or among shareholders Corporate governance includes the processes through which corporations objectives are set and pursued in the context of the social regulatory and market environment These include monitoring the actions policies practices and decisions of corporations their agents and affected stakeholders Corporate governance practices can be seen as attempts to align the interests of stakeholders Interest in the corporate governance practices of modern corporations particularly in relation to accountability increased following the highprofile collapses of a number of large corporations in 20012002 many of which involved accounting fraud and then again after the recent financial crisis in 2008 Corporate scandals of various forms have maintained public and political interest in the regulation of corporate governance In the US these include scandals surrounding Enron and MCI Inc formerly WorldCom Their demise led to the enactment of the SarbanesOxley Act in 2002 a US federal law intended to improve corporate governance in the United States Comparable failures in Australia HIH OneTel are associated with the eventual passage of the CLERP 9 reforms there that similarly aimed to improve corporate governance Similar corporate failures in other countries stimulated increased regulatory interest The corporate governance characteristics of nonlisted companies Naturally corporate governance issues vary not only from business to business but also across countries For example in the field of enforcement some identified that the level and quality of the judiciary is variable While the view that privatization in itself is a good opportunity to improve corporate governance this point will not be taken up in this synthesis note as it is one of the central issues of OECDs programme on privatisation and corporate governance of stateowned enterprises The debate on corporate governance has mostly focused on listed companies particularly in countries with developed capital markets and companies with dispersed shareholdings A leading corporate governance issue concerns the appropriate design of a legal institutional and regulatory framework that helps to align the interests of shareholders and managers Policy makers worldwide have looked to devise an effective framework that supplies proper incentives for the board and management to act in the interest of the company and its shareholders and furnish investors with sufficient monitoring information For example one of the primary risks that noncontrolling shareholders face in both private and publicly listed companies is that they will end up in a situation where the controlling shareholder may use his See Answer

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