Question

limitation of corporate governance?

Answer 1

limitations of what may commonly be accepted as “Best Practices” in Corporate Governance. Directors commonly obtain funds from venture capitalists and bankers by transferring to them some orall of their absolute powers thatcan corrupt themselves and their business. This provides evidence that the law, regulators, stock exchanges andcorporate governance codes are irresponsible in allowing directors to possess corrupting powers, not required to increase profits, when firms becomes publicly traded. Neither commonsense nor empirical evidence provides compelling evidence to support many existing practices and those advocated by numerous corporate governance codes. Many current practices are identified in this chapter asbeing: unethical, imposing risks for both directors and the firm as well as denying competitive advantages or consistency with the rationale for a market economy. Compelling reasons why existing practices are sub-optimal are revealed by thecommunication and control architecture found in living things that like firms must self-regulate to survive and grow in complex uncertain environments.

Answer 2

1. Separation of ownership and management

The officials and executives who oversee a company’s internal affairs and make the bulk of its policies are not necessarily shareholders. For can, publicly traded corporations, this may become a problem. In the absence of a controlling shareholder, and the majority of shareholders vote by a proxy, the company’s assets shall be managed by the board of directors and the officials. The ownership-management distinction will lead to a conflict of interest between management’s obligation to maximize shareholder value and increase its revenue.

2. Illegal Insiders’ Trading

The word “corporate insiders” applies to corporate executives, managers and employees as they may have access to sensitive, non-public information about the company that could impact their share value. Company insiders are not explicitly forbidden from trading in corporate securities but must notify the Securities and Exchange Board of India of these transactions. Illegal insider trading occurs when a shareholder sells a stock without access to the information and in possession of sensitive information relating to the potential value of his shares. An actioner not directly associated with the company such as an external auditor, a government regulator or a relative of a corporate insider may also participate in unlawful insider trading. Since access to confidential corporate information is widely distributed, it can be difficult to enforce legislation against insider trading.