What is the market system of corporate governance’
The market system of corporate governance depends on investors in the company to influence how the Corporation will be managed. It defines the responsibilities of the various actors of society, including shareholders, Board of Directors, management, employees, suppliers and customers.
Breakdown of the market on the basis of ‘corporate governance’
The market system of corporate governance is derived from the Anglo-American law and is one of several corporate governance systems that have developed in different ways around the world. Since the markets are the main source of capital, investors have the most power in determining corporate policy. Thus, the system relies on capital markets to influence the management of the Corporation.
Corporate governance encompasses practices as public companies are managed and interact with shareholders. The main objective of corporate governance according to the Organization for economic cooperation and development (OECD), is to create an environment, market and business confidence in individual companies and their ability to put capital to use for long-term investment.
Corporate governance addresses issues ranging from ownership concentration and Executive compensation to diversity in the workplace and the independence of the Board of Directors of the company. One of the main principles of good corporate governance is transparency in public disclosure of information relevant to shareholders and investors.
The market for corporate control is one of several approaches to ensuring adequate protection for shareholders and the company’s compliance with existing rules. USA and India are examples of market-based corporate governance systems that do not have a national policy for the management of the company should follow, but instead rely on the securities laws and regulations. Global trends in governance towards the “comply or explain” system, where companies are required to adhere to the state or the exchange of a developed market control codes.
The system limitations of a market-based corporate governance
One of the biggest challenges for effective corporate governance of the shortsightedness of the policy, according to management experts. The state company failed to execute quarterly plans earnings set by sell-side analysts on wall Street. Companies have a repertoire of accounting maneuvers that they can use in order to consistently meet or beat forecasts wall Street, thus increasing their stock price. Miss quarterly profit, however, can cause a sharp decline in stocks and send the management company scrambling for short term solutions. Management experts propose to eliminate specifying income as a way to promote a longer-term vision of the company objectives and to give companies more time to implement them.
While the market system has made progress in many areas of control, the lack of women on boards of Directors is another disadvantage of this approach.