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The development of corporate governance code in UK since 1992 - Essay Example
Author : bernitaschmidt
Finance & Accounting
Pages 16 (4016 words)
This project aims to evaluate the development of corporate governance code in UK since 1992. The motive behind the study of corporate governance stems from the fact that corporate governance has become an essential part of management of shareholders’ interests, both in UK and US. …
The essay discusses that corporate failures such Maxwell Publishing Group, BCCI, Poly Peck and Coloroll in 1980s and early 1990s in UK brought the issue of corporate governance practices by publicly listed organizations. There is no set definition of corporate governance and mostly depends upon the specific country’s view and oversight of the issue. Generally, it is known as a system of rules and principles as to how an organization should be governed and controlled. The roots of corporate governance lie in ‘Agency Theory’, which explains the problem of principal-agent. The managers or agents are bestowed with the responsibility of managing the company on behalf of the company’s owners or principals. While these agents have informational advantage, the principals have to rely on the board appointed by them to oversee the agents’ management. Therefore, agency theory has had a deep influence in shaping the characteristics and reforms of corporate governance. A proper governance mechanism in organization was required in order to facilitate a prudent and effective entrepreneurial management to deliver the long-term success of the organization underlying assumption of corporate governance is that the board of directors is responsible for the management of business and control of risks faced by it. While the framework of an effective corporate governance is still is in development stage in most of the developed economies, the recent economic downturn has raised the doubt over the effectiveness of corporate governance can ever be achieved. ...