8 Main Issues of Corporate Governance

Major issues in corporate governance reports have included the role of the board, risk management, and corporate social responsibility, the quality of financial reporting and auditing, and directors‘ remuneration.

Issues of Corporate Governance

Let’s discuss some basic issues of corporate governance:

  1. Ethical Issues
  2. Efficiency Issue
  3. Accountability Issues
  4. Duties of Director
  5. Composition of Board
  6. Remuneration to Directors
  7. Risk Management
  8. Financial Reporting and External Auditors

Ethical Issues

Ethical Issues are those issues that have a reverse impact on a person and on society as a whole. These issues involved fraud problems like commission offers to the inspection team, gifts to customers, insider trading, etc. Firms want to achieve their goal by adopting such kind of unethical issues which promotes corruption.

Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision-making. Many organizations establish Compliance and Ethics Programs to minimize the risk that the firm steps outside of ethical and legal boundaries.

Efficiency Issue

Efficiency issues are related to the performance of the firm. Every investor wants to get a good rate of return on money invested them, so it is the responsibility of the firm‘s management to make sure that their investors always get a good rate of return.

Accountability Issues

Accountability issues show the transparency between the management and the stakeholders for the firm‘s activities. Transparency results in good relations between the stakeholders and the management.

Organizations should clarify and make publicly known the roles and responsibilities of the board and management to provide shareholders with a level of accountability. They should also implement procedures to independently verify and safeguard the integrity of the company’s financial reporting.

Duties of Director

The corporate governance reports have aimed to build on the directors‘ duties as defined in statutory and case law duties of directors. These include the fiduciary duties to act in the best interests of the company, use their powers for a purpose, avoid conflicts of interest and exercise a duty with the most care.

Composition of Board

The reason for many corporate governance scandals has been boards dominated by a single senior executive or small cabinet of the kitchen with another member of the board who is working just on the remote control. It is possible that a single person may bypass the board’s directions to meet his own personal interests.

In the case where the organization is not dominated by a single person, there may be other problems in the composition of the board of directors. The organization may be run by a minority group revolving around CEO or CFO and recruitment and appointments may be done by personal recommendations rather than a formal system.

So the board composition should be an adequate mix of talent, skill, and specialists in special types of issues faced by the company. The board should also consist of directors of proper age mix so that the seniors should work with young directors and seniors should work for succession planning.

Remuneration to Directors

Directors being paid excessive bonuses and salaries has been identified as significant corporate abuse for a large number of years. It is, however, unavoidable that the corporate governance codes have been targeted on this significant issue.

Risk Management

If the board does not arrange regular meetings in order to consider the organizational activities systematically it shows that the board is not meeting their responsibilities.

But this thing also occurred sometime when the board is not provided with full information to properly oversight on business activities. All this mess results in a poor system that may unable to report and measure the risks associated with the business.

Financial Reporting and External Auditors

Financial reporting and auditing issues are seen as more critical to corporate governance by the investors because of their main consideration in ensuring management accountability. Whilst considering the corporate governance debate only on reporting and accounting issues is insufficient, the greater regulation of practices such as off-balance sheet financing has directed to greater transparency and a reduction in risks faced by investors.

The necessary questioning may not be carried out by an external auditor from senior management because the auditors may have the threat of losing the audit assignment. In the same way, internal auditors may not question senior members on objectionable issues because their employment matters are determined by the Chief Financial Officer.

But generally, the external auditors become the reason for the corporate collapse, for instance, in the case of Satyam Computers which was poorly focused, and the planned audit failed to determine the illegal usage of monies from clients.

FAQs About the Issues of Corporate Governance

What are the issues of corporate governance?

These are the issues of corporate governance: Ethical Issues 2. Efficiency Issue 3. Accountability Issues 4. Duties of Director 5. Composition of Board 6. Remuneration to Directors 7. Risk Management.