The Role of Non-Executive Directors for the Best Work of Corporation Essay

The Role of Non-Executive Directors for the Best Work of Corporation - Essay Example This paper illustrates that corporate governance is mainly concentrated on the problem of a safety mechanism which ensures the interests of shareholders and the interests of the directors managing the company are aligned and observed. In fact, it deals with the ways in which suppliers of finance to the corporations assure themselves of getting a return on their investment. The governance problem arises when managers’ or directors’ interests of maximizing their own wealth, power and prestige and shareholders’ interests of increasing the value shareholders’ equity collide. This misalignment of interests was addressed by the agency theory developed in the West. The theory assumes that interests of managers and principles or owners are not aligned because of the separation of ownership and control and the only mechanism to safeguard shareholder’s interests is to implement appropriate governance structures. The agency problem in the United States and the United Kingdom is between the management/board and outside diverse shareholders while in continental Europe and Japan and East Asian markets with their concentrated ownership structure the main conflict is between the major owners/directors and minority shareholders. Corporate scandals such as notorious Enron, Tyco, WorldCom, Polly Peck, HIH Insurance, and OneTel suggested the need for changes in corporate governance regulations all over the world. As trust towards company insiders as well as to auditors, analysts or regulators was shattered, governments started to think over regulations which would prevent such unfair practices. As the board of directors represents the interests of shareholders and controls\supervises the management, its effective functioning is a strong corporate governance mechanism.