Separation Of Ownership And Control In Corporate Governance

The definition of corporate governance most widely used is "the system by which companies are directed and controlled" (Cadbury Committee, 1992). Specifically it is the framework by which the various stakeholder interests are balanced. The stakeholders are the owners, majority shareholders, management, employees, customers, external auditors and other interested parties. Corporate governance separates ownership and control. The separation of ownership and control creates a need for independent monitoring, control guidelines and processes. The C suite of managers act as agents for the stakeholders. The Board of directors provides the rules and guidelines. The Financial Analyst provide the control and feedback to the users of the financial …show more content…
Did they add shareholder value? Did they commit fraud? Are the mediocre or are they great. The analyst values the securities through a thorough review of the historical and current financial reports. They use all available information to determine the fair value of the firm and predict the future performance. The feedback provided is valuable and sometimes highlights significant issues like earnings management or even fraud. Analyst are more like to detect management fraud than the external accounting firm that audited the firms’ statements. Internal or external analyst assess the accuracy of the forecast provided by the management. In well-established investor markets analyst will closely follow a firm’s performance. Analyst a less likely to follow closely held companies and companies traded in a weak investor market. Their role is the most important in reducing agency cost. Managers that know they are being watched are less likely to manage earnings and maximize their compensation. (Class Notes) The financial analyst function is important to an efficient …show more content…
Has corporate governance really been improved? Not hardly, we still have a significant issues with the function of the board of directors and the audit committee. The salaries of the CEO’s are out of control. Shareholders are outrage by the compensation packages and bonuses granted especially in poor financial years. This is a primary responsibility of the BoD. If they fail, the audit committee should address and correct the issue. If they were improved we would see situations like Enron, but similar to Enron we have scandals that are common place like Green Mountain coffee, Chesapeake Energy and Groupon. Continuing issues with the Board of Directors calls for additional changes. A few recommendations would be to set term limits for board members (not a bad idea for congress as well), require continuing education, require ethics training. (Forbes, 2012) The control environment is corrupted when owners / cofounders are able to set their own compensation and manager the board of directors. How can you maintain independence if the board is not truly