Personal Finance

Management style key to failure or success of firms

A business with good governance often reports higher profits. PHOTO | FOTOSEARCH
A business with good governance often reports higher profits. PHOTO | FOTOSEARCH 

Corporate governance has existed for centuries. In 1776, Adam Smith stated that directors acting as agents of shareholders could not be expected to be as diligent shareholders, thereby separating interests of shareholders from those of directors.

Shareholders are owners of the business and risk takers therefore more interested in good governance while directors do not own the business and hence do not bear a lot of risk.

Corporate governance adopts company law as its foundational law and therefore developments in company law over the years have had a direct impact on corporate governance.

The modern concept of a company comes from laws developed from the 19th century whose key objective was to have a legal entity separate from its owners but also having the rights of a legal person.