5. What are the major challenges of modern corporate governance?

(Ans): By definition, Corporate governance is “the system by which companies

are directed and controlled” (Cadbury Committee, 1992). It is the framework that
defines the relationship between shareholders, management, the Board of
Directors and other key stakeholders.
A good corporate governance is beneficial to the companies in building trust and
confidence among the investors, while establishing one companies come across
some challenges which they must overcome in order to restore balance among
participants in the corporate structure.

1. CONFLICTS OF INTEREST:

Avoiding conflicts of interest is vital. A conflict of interest within the

framework of corporate governance occurs when a controlling member of
a corporation has other financial interests that directly conflict with the
objectives of the corporation.

“Corporate governance is concerned with holding the balance between economic and
social goals and between individual and communal goals” (Sir Adrian Cadbury, UK,
Commission Report: Corporate Governance 1992)

2. OVERSIGHT ISSUES:

Effective corporate governance requires the board of directors to have

substantial oversight of the company’s procedures and practices. Oversight
is a broad term that encompasses the executive staff reporting to the board
and the board’s awareness of the daily operations of the company and the
way in which its objectives are being achieved.
 “Governance challenges can usefully be met through an investigative approach rather
than by way of a check list of normative principles against which any system is checked”
(Governance Theory and Practice: A Cross-Disciplinary Approach by Vasudha Chhotray,
Gerry Stoker).

3. ACCOUNTABILITY ISSUES:

Accountability is necessary for effective corporate governance. From the

top-level executives to lower-tier employees, each level and division of the
corporation should report and be accountable to another as a system of
checks and balances.
“If the business community does not come together to define its social and
environmental responsibility and then act on that definition, I fear we will not achieve a
(that) better society.” (Courtney Pratt, President: Noranda Inc.)

4. TRANSPARENCY:

To be transparent, a corporation must accurately report their profits and

losses and make those figures available to those who invest in their
company. A lack of transparency can also expose the company to fines from
regulatory agencies.

“It is essential that the activities of corporate executives are under constant, vigorous
and public scrutiny, because those activities are crucial to the economic well-being of
society” (Ann Crotty, Business Day)

5. ETHICS VIOLATIONS

Members of the executive board have an ethical duty to make decisions

based on the best interests of the stockholders. Further, a corporation has
an ethical duty to protect the social welfare of others, including the greater
community in which they operate.
 “Good corporate governance is about 'intellectual honesty' and not just sticking to rules
and regulations, capital flowed towards companies that practiced this type of good
governance “(Mervyn King, Chairman: King Report).

It is certain that companies must avoid these issues, and the future of
corporate governance lies on how they are handled.

References:
Chhotray V., Stoker G. (2009) Governance: From Theory to Practice. In: Governance Theory
and Practice. Palgrave Macmillan, London. (https://doi.org/10.1057/9780230583344_10 )

Corporate Governance Research Institute (PTY) Ltd. Corporate Governance Framework

(https://www.corporate-governance.co.za/Home/tabid/118/Default.aspx ).