Corporate Governance

Assignment 499

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Corporate governance:

1. Analyzation of Internal governance mechanisms:

Ownership concentration:

The ownership concentration is actually an efficient system of corporate governance due to the fact that, the owners who engulf the large portion of the stock possess a strong interest in the monitoring of the managerial decisions than the small shareholders. It is being noticed that the institutional investors like the stock mutual funds and the pension funds of public have large stock blocks and the shareholders tend to monitor and take necessary actions against the managers who gain excessive perk but provide only poor performance.

Board of Directors:

The board of directors has the power to undertake the controlling and the monitoring of the managerial decisions and the selection of the members of the board of directors is done by the shareholders to make sure that the firm runs in such a way so as to generate profits from the existing market conditions.

Executive compensation:

This corporate governance method is done to bring into alliance, the interests of the managers and the firms’ owners by tying up the payroll of the managers to the firms, through salaries, bonuses and incentives. But, it should be taken into consideration that, the long term strategies are complex in nature and it becomes difficult to bring into line the performance of firms with the strategies of managers. Firstly, the compensation that will be made by the top level managers can be determined by the financial condition of the firm. Because direct supervision will not be effective as the top level decisions are non-routine in nature. Secondly, as the top level decisions are not immediate, it is difficult to evaluate the effectiveness of the decision. Lastly, there are certain variables that affect the top...