Does Corporate Governance Work - Essay Example

Karamanou and Vafeas (2005) narrow the definition of corporate governance to the task of monitoring the performance of an employee. On the other hand, increasing its extent and scope, corporate governance is described a broad based set of principles and practices through which shareholders control the directors of the company. Moreover, the “Combined Code of Corporate Governance” introduced by the London Stock Exchanges defines the purpose of corporate governance as to “facilitate efficient, effective, and entrepreneurial management that can deliver shareholder value over long term” (Boyle, p.3, 2009). Broadly corporate governance establishes rights and responsibilities of stakeholders specifying rules for decision making.

It also a set of techniques that evolved over time and are put in place to control the conduct of executives both within the organization and externally (Walsh & Seward, 1990). In the traditional finance paradigm, corporate governance is restricted to the relationship between a company and its shareholders. According to the managerial discourse, corporate governance is a codified set of normative principles that are at times immutable (Cobbaut, 2003). On the other hand, Cadbury (1997) defines strong governance as an optimisation between monitoring and performance.

Corporate governance, thus, is an intangible whose effects can be perceived through its working. Corporate governance like other intangibles, for example, loves and hatred doesn’t have a concrete shape and form, but its effects are realised by the nature of its working (Plessis et al., 2005). The varied nature of working of corporate governance, and its broad scope, doesn’t allow for development of a single and comprehensive notion. The definitions of corporate governance, with their differences apart, have quite a few commonalities but none has achieved definitive status (Boyle,