The Evaluation of the Concept of Corporate Governance Within the Framework of Its Potential Advantages and Side Effects

It can be claimed that the business world in various nations, both developed and developing, has become more concerned with corporate governance (cg) lately. This is because of several financial disasters and scandals that have occurred, such as those involving Enron, Parmalat, and Lehman Brothers. What we should inquire about in this context is the precise meaning of corporate governance. Corporate governance refers to the system or strategy that governs the interactions among all actors involved in a company, such as shareholders, stakeholders, boards, and managers. It establishes the goals and duties of the company in a way that respects the rights of shareholders and all other stakeholders. It is guided by the principles of fairness, transparency, accountability, and responsibility. The Board of Directors is the main actor of corporate governance practices. It, which is responsible for directing the company, builds the balance of power between the shareholders who provide funds to the company and the Management who runs the company’s affairs. Fundamentally, it can be claimed that the success of corporations depends on ‘building trust’ between all players. By defining the roles and duties of the company’s management system, corporate governance practices enhance the confidence in its performance. Some of the potential advantages of corporate governance can be listed as follows: it reduces the cost of capital; provides cash inflow; creates a trust environment for domestic and foreign investors and increases the attractiveness of the company; reduces power and authority abuse in the company and helps to prevent corruption and corporate scandals; thus serves the stability of the company. In this respect, with a proper strategy and planning, corporate governance may bring success for companies in the medium and long term. However, a universal corporate governance system that can be applied to every financial market in the world is not feasible due to the different economic and cultural backgrounds. For instance, the divergence of interests between owners and managers (agency problem) and disagreements between shareholders and other parties (stakeholder theory) are some of the main issues in corporate governance systems. In this part, the potential definitions of good corporate governance will be examined; the principles, the models, and the main theories of corporate governance will be examined and finally, the main advantages of corporate governance will be evaluated.