Intro to Good Corporate Governance
Corporate governance refers to the method by which companies / organizations are managed, managed, operated, and controlled in accordance with established objectives (Hutchinson, 2005, p. 118). Hutchinson further stated that corporate governance issues became very interesting and talked a lot about the company’s bankruptcy because of large companies such as HIH insurance companies and telecommunications companies One Tel. Corporate Governance is important for companies to be well managed, accountable and transparent.
The Organization for Economic Co-operation and Development (OECD) emphasizes that: “The corporate governance framework must promote a transparent and efficient market, be consistent with the rule of law and clearly articulate the division of responsibilities between different supervisory, regulatory and law enforcement authorities” ( OECD, 2004, p. 29). Effective corporate governance must therefore uphold transparency and promote market efficiency.
This means that every information presented by the company can be accounted for and can provide information to users of financial statements in the capital market. Corporate governance also upholds legal principles and obeys rules at all levels. All must meet applicable laws. In other words, if the company is managed, run well and controlled in accordance with applicable regulations, it will create a healthy business climate. Corporate Governance is very important in providing an excellent investment climate in a country with competitive company characteristics in support of a healthy and efficient capital market (Sori and Karbhari, 2005).
GCG has been widely discussed and raised since beginning 2000 as the result of mega accounting scandals in the US.
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