Importance of Corporate Governance in Business Organizations

This report discusses the importance of corporate governance in modern business organizations and its impact on financial stability and success. It explores different theories and findings related to auditors and corporate governance, as well as their responsibilities and contributions. The report also provides recommendations for improving corporate governance practices.

Running head: APPLIED BUSINESS RESEARCH
Applied business research
Name of the student
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Table of Contents
Introduction................................................................................................................................3
Common Themes and Findings.................................................................................................4
Conceptual understanding of auditors and corporate governance.........................................4
Different Themes and Findings..................................................................................................5
Managerial Implication of the articles.......................................................................................6
Auditor’s responsibilities and contributions toward corporate governance...........................6
Study Limitation and future research dimensions......................................................................7
Recommendations..................................................................................................................7

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Introduction
The following report is based on the identification of Corporate Governance and to
state the importance of Corporate Governance in the modern day business world. Corporate
Governance can be said to be the comb nation of rules, laws and business processes through
which the management of the business enterprises controls the operations of the business. It
also involves the processes through which the management controls and regulates the
business organizations (Aguilera Judge and Terjesen 2018). The corporate governance
process is a complex and chain process through which that involves the stakeholders,
suppliers and the consumers of the company. The management along with the board of the
directors of a company is responsible for the formulation of the necessary theories and
frameworks that can define the perspectives of the corporate governance. The frameworks are
formulated in such a manner that it helps the management of the business organizations to
address the issues in the most effective and controlled manner.
The system of the controlled manner is involved directly with the different kinds of
the business processes. These includes the creation of a proper action plan and the creation of
a business structure that helps the management to easily link the goals of the corporate
governance with that of the objectives of the business (Alzeban and Gwilliam 2014). The
policies, action plans and the other frameworks helps the enterprises to maintain the different
kinds of standards related to the same. The formulation of the corporate governance process
helps the management of the business to eradicate any forms of improper structures, irregular
and unethical practices to ensure the financial success of the business. The corporate
governance process of the organizations must be incorporated by means of legal and
contractual obligations. The implementation of the legal and contractual obligations will help
in the operational and financial stability of the different business organizations.

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Common Themes and Findings
Conceptual understanding of auditors and corporate governance
As said earlier, corporate governance can be said to be an indispensable factor that
helps the management of the business organizations to analyse and present a detailed
financial analysis. The financial analysis of the organization also leads to the mitigation of
the misappropriations of the capital management within a business organization. The proper
implementation of the governance process helps the management of the business organization
to oversight the different financial performances of the business organizations. The internal
auditing process within a company gets the necessary boost in the presence of the
perspectives of corporate governance process. The corporate governance process thus boosts
the capability of the organizations to manoeuvre and design a secure and sound financial
structure that helps to stabilize the financial aspects of the company. Most of the companies
generally places control mechanisms that are efficient in the controlling, monitoring,
direction and proper promotion of the business organization.
The corporate governance theories generally address the different kinds of the
challenges that are faced by the firms in daily business operations. The different theories that
are currently applied by the management of the business organizations for corporate
governance includes the likes of;
a. Agency Theory- The Agency theory generally links the professional relationship in
between the principals of the company and the agents of the company. The enterprise
is involved in the hiring of the employees from agencies to perform operations for the
business.

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b. Stewardship Theory- The steward theory helps to protect and increase the shareholder
share by means of the increase in the productivity performance of the business. The
stewardship theory helps the management of the business to ensure trust and
communication in the business.
c. Resource Dependency Theory-The resource dependency theory of the business is
implemented by the management of the firm in order to provide the access to the
different kinds of the resources that can be helpful for the development of the business
performance.
d. Stakeholder Theory- The stakeholder theory of the business organization helps the
management of the business to involve all the stakeholders of the business and
implement a sense of responsibility in the organization.
Different Themes and Findings
The different research papers selected for the identification of the corporate
governance process has been able to find out a number of different themes related to the
organizational elements of the business. The study of (Alzeban and Gwilliam 2014) has
presented the results that clearly shows the perceived effectiveness related to the internal
audit system of the business organizations. The management supports the organization by
engaging the Human Resource department by means of hiring trained and experienced
business staff and also by the creation of a proper link in between the external auditors and
the management. This apart the study of (Rodriguez-Fernandez 2016) has demonstrated the
proper positive relationship in different kinds of the business directions which occurs from
being profitable to social and vice versa. This clearly states the implementation of the social
policies in the organization has led to the social policies have a direct link to the performance
of the financial assets of the organization. The following theory suggested by (Rodriguez-

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Fernandez 2016) thus clearly supports the fact that the social engagement of the company has
a direct role to play in the development of the different kinds of the financial policies.
Another research on the same subject has established a clear link in between the corporate
governance and CSR. The major types of the governance issues includes the systems that are
introduced in a proper and efficient manner. Governance is described as an adaptive process of
implementing the different strategies to ensure the success of the business in a systematic
process. The application of the CSR into the organizational governance system helps the
management to follow a strong culture that abides by all the legal, cultural and social rules
(Tricker and Tricker 2015). Thus it can be said that the CSR actions is another necessary tool for
the proper and strategic use of the corporate governance elements.
Managerial Implication of the articles
Auditor’s responsibilities and contributions toward corporate governance
Corporate Governance is the manner or the process by which the management of the profit
seeking organizations controls and directs the different operational systems of the business. The
maintenance of the systems helps the management to ensure professional as well as financial
success for the company. Auditors of the company thus has a major role to play in the proper
analysis and contribution towards the financial stability of the organization. Some of the roles
and responsibilities of the auditors has been cited below.
a. Representing the interest of the shareholders- The interest of the shareholders are
maintained in a harmonious manner by the auditors. The company has no influence in the
report prepared for the external auditing process and thus the auditors helps the shareholders
to assess the true financial status of the company. The proper picture about the financial
status helps the shareholders to take a stock of the situation and decide their plans on whether
to invest or not invest in the company.

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b. Promoting Accountability- The external auditors of the company can suggest some measures
and provide the necessary recommendations to the company regarding the use of the financial
measures and also to implement them in the proper manner that can actually help the
organization.
c. Management of crisis situation- The capability to present a strong action plan to meet the
demands of the company and stabilize the financial situation helps to promote corporate
governance. The auditors are able to critically review the crisis situation and analyse them
accordingly.
d. Planning a risk management- The capability of the auditors to assess the financial situation
of the company can make them capable of providing adequate risk management process in a
proper and efficient manner. The planning of the risk management process will help the
company get rid of the financial problems and manage the risks efficiently.
e. Strong relationship with the regulators- The strong relationship in between the regulators
and the auditors helps the management of the companies to answer all the different issues of
the organization in an efficient manner. The strong relationship with the regulators can help
to comply with all the legal guidelines of the company.
Study Limitation and future research dimensions
Recommendations
Some of the recommendations are as follows;
a. Raising the capital limits- The rise in capital limits can ensure the success of the organization
as rise in capital will secure the financial picture of the organization.
b. Securing the debt process- The debt process security will ensure success for the company in
the proper system.

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c. Appointment of the best auditors- The appointment of the best auditors in town can be
helpful for the organization. The appointment of the best auditors can help to ensure the best
feasibility and sustainability of the organization financially.

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References
Aguilera, R.V., Judge, W.Q. and Terjesen, S.A., 2018. Corporate governance
deviance. Academy of Management Review, 43(1), pp.87-109.
Alzeban, A. and Gwilliam, D., 2014. Factors affecting the internal audit effectiveness: A
survey of the Saudi public sector. Journal of International Accounting, Auditing and
Taxation, 23(2), pp.74-86.
Cuomo, F., Mallin, C. and Zattoni, A., 2016. Corporate governance codes: A review and
research agenda. Corporate governance: an international review, 24(3), pp.222-241.
Müller, R., Turner, J.R., Andersen, E.S., Shao, J. and Kvalnes, Ø., 2016. Governance and
ethics in temporary organizations: the mediating role of corporate governance. Project
Management Journal, 47(6), pp.7-23.
Omolaye, K. and Jacob, R., 2017. The Role of Internal Auditing in Enhancing Good
Corporate Governance Practice in an Organization. International Journal of Accounting
Research, 6(1), pp.1-8.
Rodriguez-Fernandez, M., 2016. Social responsibility and financial performance: The role of
good corporate governance. BRQ Business Research Quarterly, 19(2), pp.137-151.
Rowley, T.J., Shipilov, A.V. and Greve, H.R., 2017. Board reform versus profits: The impact
of ratings on the adoption of governance practices. Strategic Management Journal, 38(4),
pp.815-833.
Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and
practices. Oxford University Press, USA.

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Wilkin, C.L., Couchman, P.K., Sohal, A. and Zutshi, A., 2016. Exploring differences
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Young, S. and Thyil, V., 2014. Corporate social responsibility and corporate governance:
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