Corporate governance refers to the fiduciary and administrative roles and responsibilities which companies have towards their stakeholders which enable them to operate in a way that is ethical yet economically sensible. This paper reviews Cornelis A. de Kluyver’s ‘A Primer on Corporate Governance’. It seeks to analyze how corporate governance facilitates the success of the relationship between corporations and the society.
According to Kluyver, the shareholders of a company own it but since they cannot be engaged in the day to day running of its activities, they elect managers and directors to perform the duties on their behalf. The implementation of proper corporate governance structures aligns the behavior of the appointed managers to the goals of the company to ensure that they protect the interests of the shareholders as well as the corporation. The managers of corporations such as Enron, Worldcom and Tyco failed to protect the interests of the shareholders, resulting in the misappropriation of their funds.
The author also states that a corporation exists as a separate legal entity from its owners, the shareholders. Corporate governance acts as the law that monitors how effectively and ethically is run by the directors appointed by the shareholders. Corporate behavior, especially of large corporations, has a substantial effect on multiple stakeholders such as creditors, customers, shareholders, the community, and the economy. As such, the government acts as a watch-body because, from prior experiences, the collapse of corporations has had a severe negative impact on not only the stakeholders but the economy. In 1929, President Roosevelt through Congress implemented the Securities Exchange Act to encourage the public to invest in the stock market which seemed to be on the brink of collapsing. Since then, the government has had to enact other laws and regulations to protect stakeholders against losing wealth through the financial malpractices of managers and directors. These laws include; the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (de Kluyver, 2013).
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