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The idea of CG indicates how a firm should be managed by those assigned responsible for strategic decisions and company prosperity.Since the division of ownership and executive functions among medium and large businesses, an issue of proper and sufficient control of managers by shareholders of the company has arose.The key question addressed is whether or not the corporate governance initiatives and legal and regulatory reforms in Zimbabwe are sufficient to enable boards of public entities to effectively discharge their duties and meet internationally accepted corporate governance standards.
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Corporate governance (CG) is the process and mechanism by means of which the business is managed aimed at attaining firm well-being. (2000) argued CG to be a range of tools using which external non-controlling investors secure themselves from power usurpation by the insiders.
In this case, executive managers and controlling investors are considered as insiders as they have more information on the actual performance of the company and may utilise it in their own interests at the expense of small shareholders who have no power to affect corporate decisions (Nheri, 2014).
A number of theories tried to explain the effect of CG on firm performance.
Agency theory remains the most influential theory, suggesting that the board is mainly an instrument of control over executives.
Thus, the central role of the board of directors in the establishment of the principles of effective CG in every firm should not be underestimated.
The main target of implementing CG practices in a firm is to maintain and increase shareholder value by introducing mutually supportive mechanisms of control and stimulation of managers (Babic et al., 2016).
It also considers volume and structure of CEO payment as an incentive factor stimulating CEO to work for the increase of firm value (Naimah and Hamidah, 2017).
At the same time, performance-linked remuneration is considered to be more effective than a salary that is paid independently on firm performance (Rahman and Bremer, 2016).