Corporate Governance - Systemic Problems of Corporate Governance

Systemic Problems of Corporate Governance

  • Demand for information: In order to influence the directors, the shareholders must combine with others to form a voting group which can pose a real threat of carrying resolutions or appointing directors at a general meeting.
  • Monitoring costs: A barrier to shareholders using good information is the cost of processing it, especially to a small shareholder. The traditional answer to this problem is the efficient market hypothesis (in finance, the efficient market hypothesis (EMH) asserts that financial markets are efficient), which suggests that the small shareholder will free ride on the judgments of larger professional investors.
  • Supply of accounting information: Financial accounts form a crucial link in enabling providers of finance to monitor directors. Imperfections in the financial reporting process will cause imperfections in the effectiveness of corporate governance. This should, ideally, be corrected by the working of the external auditing process.

Read more about this topic:  Corporate Governance

Famous quotes containing the words problems, corporate and/or governance:

    The Settlement ... is an experimental effort to aid in the solution of the social and industrial problems which are engendered by the modern conditions of life in a great city. It insists that these problems are not confined to any one portion of the city. It is an attempt to relieve, at the same time, the overaccumulation at one end of society and the destitution at the other ...
    Jane Addams (1860–1935)

    If when a businessman speaks of minority employment, or air pollution, or poverty, he speaks in the language of a certified public accountant analyzing a corporate balance sheet, who is to know that he understands the human problems behind the statistical ones? If the businessman would stop talking like a computer printout or a page from the corporate annual report, other people would stop thinking he had a cash register for a heart. It is as simple as that—but that isn’t simple.
    Louis B. Lundborg (1906–1981)

    He yaf me al the bridel in myn hand,
    To han the governance of hous and land,
    And of his tonge and his hand also;
    Geoffrey Chaucer (1340?–1400)