Corporate Governance, Social and Economic Institutions

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Corporate Governance, Social and Economic Institutions

Corporate governance, design, and government regulations are important aspects of a company. Organizations that adhere to industry regulations and with good corporate governance culture always succeed. In contrast, a poorly designed company with lax government regulations can fail. Government regulations ensure that firms align their operations with community and shareholders interest in mind. While these regulations vary by country, several key similarities across jurisdictions exist. This paper discusses the meaning of corporate governance and how to design it. It also focuses on its consequences and reasons for the needs of government regulations.

The first step is to define what is meant by good corporate governance. Corporate governance can be defined as the set of principles, processes, and procedures within a company that determines how a company is directed, controlled, and coordinated to achieve its intended business objectives. There are many different theories and models of corporate governance, so it is important to decide which one to use as a framework. The companys board, leadership, shareholders, and external stakeholders, including lenders and authorities, are all important considerations.

Second, the company should have clear policies and procedures governing areas such as financial reporting, risk management, and insider trading. These policies should be enforced by an effective compliance program, which includes regular audits and training for employees. Third, the company should have a robust system for shareholders to raise concerns and provide feedback. This system should include formal channels, such as shareholder meetings, and informal channels, such as social media. Finally, the company should be transparent and accountable to its shareholders, disclosing all material information promptly. It includes financial information and information about the companys operations and risk management. Companies may accomplish their performance targets and safeguard the interests of investors by adhering to these rules of corporate governance.

Poor Corporate governance has consequences. To begin with, when employees feel that their company is being poorly managed, they are likely to have low morale and be less productive. It can lead to a loss of money for the company and lower employee satisfaction and turnover. Consequently, if a company is not well-handled, money is likely misused. It could mean that the company is spending more money than is necessary or that the CEO is not using funds to benefit the company. Furthermore, suppose a Board of Directors does not fulfill its obligations to shareholders. In such instances, the government may need to intervene and designate an inspector to ascertain that the business is running effectively. Finally, if customers are dissatisfied with their experience at a business, they may choose to no longer do business with that company.

One example of a company with poor corporate governance is Tesco, the biggest retailer in Europe. However, following various scandals including profit reporting and false accounting its stock price fell by over 50% in 2015. Another British grocery chain, Sainsburys, also underwent a crisis in 2018 when one of its own-brand products contained the euthanasia drug pentobarbital. The company was forced to recall it, resulting in a drop of about £300 million in its market value. Another example of companies with poor corporate governance is Volkswagens emission scandal. The company managed to sell 11 million vehicles worldwide despite knowing that its vehicles were not compliant with environmental standards. As a result, Volkswagen was forced to initiate its biggest recall ever and replaced the engines in over 1 million cars at the cost of an average of $7.4 billion.

One last example is GSK, the British pharmaceutical company which produced paroxetine hydrochloride, an antidepressant drug. The company was found to have withheld information from the public that the drug could lead to suicidal thoughts in young people. As a result, GSK was fined £3 billion by the UK and US governments. Government regulation is necessary for a variety of reasons. One reason is that businesses would be able to act in whatever way they want without government regulation. If there were no regulations on how much a company can charge for their goods and services, or if no regulations were ensuring the safety of products and services, companies would be able to set prices at any level and provide anything without worrying about the consequences.

Government regulation is also necessary because businesses will not follow laws or other regulations, which can put all members of society in danger. If a company produces food that does not meet health standards and sells it to people, this poses a significant risk to others. People could become very ill or even die from eating the food. In order for businesses to be held accountable, government regulation is necessary to set and enforce standards.

Finally, government regulation is important to prevent businesses from becoming too big and powerful. When a business becomes very large, it can manipulate the market or control what consumers want. In this situation, there is no competition in the market because all companies follow the same rules. However, government regulation can also have negative consequences. For example, it can lead to higher costs for consumers, reduced innovation and efficiency in the marketplace, and a loss of entrepreneurial spirit. The governments role in the economy is not to protect companies but rather to protect society as a whole.

Illustrations below are cases of protecting consumers from being taken advantage of by businesses. In the Baby Jessica case, in the United States, legislators passed a law that issued sanctions against hospitals that did not have enough life-saving equipment on hand. Also, product safety regulation requires manufacturers to meet specific standards for the safety of their products before they can be sold to consumers. Furthermore, allowing the government to regulate corporations increases its power and could lead to corruption. There is also an issue with enforcement if there are too many regulations that it becomes hard to keep track of them all, and companies risk not following one of the many rules. Regulations may encourage rent-seeking behavior in entities that lobby regulators to create regulations that benefit them at the expense of competition.

In conclusion, the design of social and economic institutions is a key component in evaluating corporate governance. Governments regulate corporations for two reasons; to protect investors from fraud, loss, or mismanagement and prevent abuse against employees. However, poor corporate governance undermines the legitimacy of a company and its management. Ultimately, there is a need for better regulation to allow more control over data while also protecting citizens very important rights while living in democratic societies. Designing laws is not enough; we need more extensive government regulations to protect companies from themselves by designating how they should govern themselves through legislation.

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