CORPORATE GOVERNANCE AND ORGANISATIONAL EFFECTIVENESS 3
CORRUPTION AND THE FIRM’S PERFOMANCE 5
Corporate governance, as defined by the Bank of Zambia (BOZ) is the process and structure used to direct and manage the business and affairs of an institution with the objective of ensuring its safety and soundness and enhancing shareholder value. Drury et al. (2006) define corruption "as the abuse of public office for private gain," whether pecuniary or in terms of status. The gain may accrue to an individual or a group, or to those closely associated with such an individual or group.
Wu, (2005) gives us an explanation of the ...view middle of the document...
Consequently, Corporate governance has emerged as a major policy concern for many developing countries following the already mentioned financial crisis in Asia, Russia, and Latin America,(Wu 2005). Corporate governance structures that specify the distribution of rights and responsibilities among different participants in the corporation such as the board of directors, managers, shareholders, creditors, auditors, regulators, and other stakeholders have been formulated and they specify the rules and procedures for making decisions in corporate affairs.
Therefore, the objective of this paper will be to discuss the effects of good corporate governance mechanisms on the firm’s efficiency and to see how avoidance of corruption can impact on the firm’s effectiveness. In this paper, we investigate whether and to what extent the aforementioned distinctive characteristics of good governance mechanisms and avoidance of corruption affect productive efficiency. From the above analysis, the paper will present its conclusions.
CORPORATE GOVERNANCE AND ORGANISATIONAL EFFECTIVENESS
Corporate governance is a set of mechanisms, both institutional and market based, designed to mitigate agency problems that arise from the separation of ownership and control in a company, protect the interests of all stakeholders, improve firm performance, and ensure that investors get an adequate return on their investment (Shleifer and Vishny, 1997; La Porta et al, 2000).
Zattoni (2008) defines corporate governance as a set of complementary mechanisms built on one another and aimed at protecting investors’ rights and reducing managerial opportunism.
Good and sound corporate governance encourages the efficient use of resources and provides for accountability for the stewardship of those resources (Mensah et al 2003). Transparency International (2008) explains that good corporate governance serves as a framework to secure investor confidence, enhance access to capital markets, promote growth and strengthen economies. By providing for clear ‘rules of the game’ and ‘checks and balances’, good corporate governance systems help to lower company costs (for capital and production) and increase economic output. Such characteristics make corporate governance necessary, beneficial and useful for all sectors and types of companies whether they are multinationals, state-owned enterprises, domestic firms, small businesses or family-owned operations.
Although corporate governance frameworks differ from country to country based on the legal, regulatory and institutional environment, they have a common aim, i.e. to define clearly the rights, responsibilities and behaviors that are required of a company’s owners (the ‘principals’) and managers (the ‘agents’) for the business to operate successfully.
The governance mechanisms can be classified into internal monitoring mechanisms including ownership structure, board characteristics, outside supervision and executive compensation, and external...