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The four models of corporate governance as outlined by Letza et al - Essay Example

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The four models of corporate governance as outlined by Letza et al

Letza et al's journal was based on an extensive survey and critical review of the different theories and concepts that exist in corporate governance. Based on this comprehensive study, they identified four main approaches of perceiving corporate governance. This include: 1. Principal/Agent or Finance Model. 2. The Mypoic Market Model 3. Abuse of Executive Power Model and 4. Stakeholder Model Each of these models of corporate governance provide the basis for the perception of the importance and significance of corporate governance in organisations. Although each of them carry different merits, none of them seem to be universally accepted. This paper examines the four models of corporate governance as outlined by Letza et al (2004). The paper will undertake an analysis of the key features of each of the model. The paper will compare and contrast the approaches for each of the models and assess the future survivability of each of the concepts Corporate Governance Corporate governance refers to the ways that businesses are ran (Johnson, Scholes and Whittington, 2006). Corporate governance is about how the top level managers charged with stewardship roles in the organisation carry out the task of safeguarding assets and meeting the core vision and mission of the organisation. The development of corporate governance has come with several issues and situations that have had important impacts on the relationship between shareholders and strategic leaders of organisations. Major scandals that rocked the corporate world like the Enron matter played a role in facilitating rules and principles that define the corporate governance terrain today (Clarke, 2005). Important components of businesses played various roles in shaping corporate governance rules and regulations. Short Termism V Sustainability Most businesses are faced with a major dilemma of whether they should acquire short term results or work for the development of the longer term interests of the business. In drawing the balance between shortermism and sustainability, most businesses are concerned with four key things (Aras and Gowther, 2009 p282). These include: 1. Societal impact: That is the impact of the business on the society. 2. Environmental impact: The impact of the business on the natural environment. 3. Organisational culture: The relationship between organisational and internal stakeholders like employees. 4. Finance: The acquisition of adequate returns commensurate with the risks taken. These four important factors play a major role in determining the terrain and activities of the organisation. The major corporate collapses like Enron were attributed to blatant disregard for some key elements of these four components of businesses (Clarke, 2005). Thus, they all played roles in defining the creation of corporate governance rules and systems. Although there is still evidence of shortermism in corporate organisations, there is still some important roles that corporate governance standards and roles play in promoting sustainability in business (Eyatt, 2005). Risk Management One of the roles that corporate governance plays is that it helps in the creation of risk management systems to ensure that the board of directors monitor and control risks in organisations (Fraser and Harvey, 2007). “Company business models should be explained and the board should be responsible for determining the ...Show more
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Summary

Introduction Letza et al (2004 p242) undertake a critical analysis of the debates and theories of corporate governance. They identify that the fundamental discussions on the concept of corporate governance in organisations are centred on the two main perspectives that make up the basis of corporate governance: shareholder perspective and stakeholder perspective…
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