Riskability Governance Watch
Corporate governance issues have lately become a highly discussed and controversial management component, both at the directors and managerial level. In order for the individual company to develop its own customized framework and roadmap, each business unit must understand the political, structural and historical development in the organization
As part of our Riskability assessment tools, we have now developed an IT tool we call the Riskability Governance Watch
The need is clearer and pressing
The company's corporate governance behaviour during any crisis will guide the directors and mangers companies to conduct business corporate governance behaviour in normal times
However the governance components and structures have changed since Sir Adrian Cadbury in the 1990s introduced the roots of the various components that make up the structure of good corporate governance today.
Since then there has been a continuous series of Governance reforms throughout the world, lately since the powerful push of company laws and EU directives to ensure that the companies have the right checks and balances in every department.
Companies have since also developed adequate communications platform and given the rights and power to stakeholders and shareholders to keep keeping a watchful eye on the board and CEO.
Therefore we recommend the Riskablity Governance Watch as an annual survey to ensure that all of the components of significant Corporate Governance reinforcements in the organization still meets the principles and its objectives since implementation.
Examination of the tenets of good corporate governance
Directors who were well informed about finance performed no better than know-nothings. Companies that separated CEOs and chairmen did no better. Far from helping companies to weather the crisis, powerful institutional shareholders and independent directors did worse in terms of shareholder value. Indeed, the proportion of independent directors on the boards was inversely related to companies' stock returns. This paper investigates the influence of corporate governance on financial firms' performance during the 2007-2008 financial crisis. Using a unique dataset of 296 financial firms from 30 countries that were at the center of the crisis, we find that firms with more independent boards and higher institutional ownership experienced worse stock returns during the crisis period. Further exploration suggests that this is because (1) firms with higher institutional ownership took more risk prior to the crisis, which resulted in larger shareholder losses during the crisis period, and (2) firms with more independent boards raised more equity capital during the crisis, which led to a wealth transfer from existing shareholders to debtholders. Overall, our findings cast doubt on whether regulatory changes that increase shareholder activism and monitoring by outside directors will be effective in reducing the consequences of future economic crises.
The authors argue that in the accumulated results of the crisis was that powerful institutional owners pushed firms to take more risks to boost shareholder returns. They argue that outside shareholders may be inherently more risk-hungry than managers who have their livelihoods tied up with their companies. They also argue that independent directors were much more likely to press firms into raising more equity capital even when the company's share price was tanking. One possible reason for this is that independent board members are worried that their value in the market for directorships will plummet if they have overseen companies that have filed for bankruptcy or debated restructuring.
What can we then learn on the future of good governance from the crisis and the results? Should the companies not turn conventional wisdom upside down and re-embrace the old order of Sir Adrian Cadbury from the 1990? The authors also point out that the evidence from Asia since its 1997-98 financial crisis suggests that greater external monitoring has produced better performance.
The crisis has proved that stakeholders should not expect too much from corporate governance alone. Good corporate governance on its own will not protect companies from taking excessive risks. that is a totally different discipline under the auspices of a risk Management Structure of the company by setting up better risk and internal control, rather than indirectly by ticking various corporate-governance boxes. Good corporate governance on its own cannot make up for any toxic corporate culture or lack of culture or the right tone at the top. Consultants and auditors will continue to experiment with systems of checks and balances to ensure both good governance and controls including the issues of corporate culture values and traditions but continue to develop the checks and balances to create a new order based on transparency and accountability.
- What are the conditions in the company in question that systematically have affect the structure of corporate governance mechanisms and how they function internally.
Administrative determinants of governance control structures
- Impact of local politics and legal regimes on corporate governance
- How important is the political history of corporate governance components and controls in the organisation
- Has Corporate Governance policies and procedures contributed to the shareholder vs. stakeholder value maximization
- Cost and benefits of corporate governance policies
- Politics of corporate financing, capital structure and taxation
- Political trade-off between protection of labor and minority shareholders
- Politics of managerial compensation
- Electoral politics and minority shareholder protection
- Political determinants of the size of primary stock markets
- Wars and corporate governance
- Politics of transition between governance systems.
