Stakeholder and Agency Theories for a Better Development of Corporate Governance

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So, what is corporate governance? Corporate governance being so broad in theory and implication presents a great challenge of being defined in exact terms. Lisa Mary Thomson presents a broad definition of Corporate Governance and states, Corporate governance refers to the set of systems, principles and processes by which a company is governed (2010). Corporate governance includes decision making and the implementation of those decisions by the Board of directors, so that it benefits both the share holders and the stake holders, in value and capital.
Sound corporate governance of a company signifies the board of director’s loyalty to the aims, objectives and values of the company. It helps in building the confidence of share holders as well as bringing in new investment. Keeping Lisa M. Thomson’s definition in view, the stronger the set of systems, principles and processes governing the company, the stronger will be the corporate. It will lead to the better accountability of the people running the affairs at the top of the management and towards avoiding any major fraud. Strong corporate governance shields the company against any fraud or scandal. It is the image that is reflected upon the people and prospect investment. If a company were to be run without strong corporate governance, it will lead to mismanagement of affairs, recurring frauds, lack of product quality, unsatisfied stake holders and loss of capital and value. Ensuring the empowerment of employees and share holders in the decisions that affect them also has proven positive results (Matea, 2008)