The Formation Of Corporate Governance In The 1980's

When corporations were first constructed, they were constructed with the goal of serving the investors rather than the management. Their primary objective was to “conduct business activities with a view toward enhancing corporate profit and shareholder gain.” A system of good faith was meant to govern them in which the only interests that were to be focused on were the interests of the corporation as a whole and on the shareholders. The system of governance that existed in corporations began with investors and proceeded through to a board of directors who were meant to be in charge of management. Yet, this dynamic did not hold true in many corporations of our time. It was intended that the highest authority of corporations be the board of …show more content…
During both decades, management of corporations was given the task of building up the corporation. Yet, the manners by which this happened were not entirely proper. In the 1980’s, the first crisis of corporate governance occurred when management began using shareholder returns to build-up the corporations through mergers and acquisitions. The corporations ultimately built up huge enterprises, but these enterprises were not feasible nor did they bring in sufficient returns. The expenses of having the huge enterprises outweighed the benefits, and the corporations suffered, both in share prices and shareholders’ attitudes to the corporation.. Not only did share prices decrease, but shareholders were angered by the decisions of management and pushed for board reforms to better oversee the actions of management. This was the first instance of an issue occurring in corporate …show more content…
It is up to the board of directors to now help themselves. They must take charge of the preceding changes and allow the corporations to grow legally, with integrity and in good faith. It is necessary that boards of directors take a more active role in the activities and proceedings of their corporate managements to prevent fraudulent activities that could lead to the collapse and destruction of larger corporations in the future. MacAvoy and Millstein make one thing perfectly clear. The problem of corporate governance lies with the board, but the board CAN be fixed. If everyone is willing to make compromises and take the time to consider what a board of directors needs in order to optimally function, the issue of corporate governance flaws can be fixed. The only way to overcome the crisis of corporate governance and prevent this crisis from recurring is to allow the board to direct management and allow the shareholders to direct the board. Through these reforms and shifts in focus, these crises of corporate governance may truly be prevented and history may not repeat itself