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The Various Causes of Failure of the Corporate Governance

BY: S Edwin | Category: Finance | Submitted: 2010-03-12 15:12:26
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Article Summary: "Corporate governance is a important part of every company. There can be various causes of failure of the corporate governance. These causes are listed in this article..."

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Corporate governance is a very important aspect of every company. There are many companies that have a great set of corporate governance rules. These set of rules and regulations are made for the people from the lowest rung to those at the highest level in the company to follow. There are many times when the company has a lot of problems because the corporate governance is not being maintained.

There are various reasons that can cause the failure of the mechanism. The failure of corporate governance is because of reasons like the following.

1. Looting company money:

There are many people who are in the management who try to make money from their positions. The company that has been listed on the various exchanges should be governed appropriately and all the profits should be in the company books and so they are all audited, but there are many individuals who work for their own benefit and try to loot the money that has been earned by the company. This can lead to failure in the corporate governance mechanism.

2. Spending unnecessarily:

There are also many people in public listed companies who may not be able to flagrantly loot the company, so they try to ensure that they spend a lot of money that is part of the company's income for their own benefit. These people try to loot the money from the company as they use it to travel for their own needs and also use for various other needs of their own.

3. Payment:

There are many companies that pay more to the employees than what they should actually be paid. These payments can be in the form of bonus and also other kinds of payments. This will cause the person to be happy, but the company will fall into dire straits. This is because all the money that had to be used for the betterment and the expansion of the company has been used up for the payment of various benefits and allowances to the employees.

4. Irresponsible auditing:

There are many companies that have many auditors who are on its trolls. There are also many other auditors from another neutral organization who are the external auditors who check the account books of the company. There are many times when these two companies and the employees try to cheat the investors by painting a rosy picture and have great order books and also show inflated income and deflated expenditure. This causes the company to look as if it has a lot of profit. This is very irresponsible auditing that leads to a great loss of investor confidence and also amounts to criminal act. This is another cause of the failure of the corporate governance. One of the examples of this kind of failure of corporate governance is the failure of the management of the Satyam company.

These are the various causes of failure of the corporate governance of the many companies. The management and the leadership should be efficient to make the company to thrive.

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