1 Stout (2012) The Shareholder Value Myth: How

1 R Kraakman et al., (2009) The Anatomy of Corporate Law: A Comparative
and Functional Approach (2nd ed., Oxford University Press. Pp8-9. Available
at: https://books.google.co.uk/books?id=-1VnWGrgID0C&printsec=frontcover&source=gbs_ge_summary_r&cad=0#v=onepage&q&f=false 

 

2 Revista Dinero
(2017) El poder de las juntas directivas
(The power of the boards of directors ) Colombia. Available at: http://www.dinero.com/edicion-impresa/caratula/articulo/que-esta-pasando-con-las-juntas-directivas-en-colombia/242933

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


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3 Jackson, G.
y Aguilera, R. (2010) Comparative and
international corporate governance. The Academy of Management Annals, 4
(1), 485-556.  Available at: https://s3.amazonaws.com/academia.edu.documents/36969657/Comparative_and_International_Corporate_Governance.pdf?AWSAccessKeyId=AKIAIWOWYYGZ2Y53UL3A&Expires=1516627794&Signature=g%2B96bAIyd5FJTA5TGMkaX1w3kAU%3D&response-content-disposition=inline%3B%20filename%3DComparative_and_International_Corporate.pdf

 

4 La Porta R, Lopez-de-Silanes F and
Shleifer A, (1999)  ‘Corporate Ownership Around the World’ 54 Journal of Finance. Pp
475-477. Available at: http://onlinelibrary.wiley.com/doi/10.1111/0022-1082.00115/pdf

5 Gospel, H. y
Pendleton, A. (2005). Corporate
governance and labour management: An international comparison. Oxford:
Oxford University Press. Available at: https://books.google.co.uk/books?hl=es&lr=&id=YR86f6u95asC&oi=fnd&pg=PR9&dq=Gospel,+H.+y+Pendleton,+A.+(eds)+(2005).+Corporate+governance+and+labour+management:+An+international+comparison.+Oxford:+Oxford+University+Press.+&ots=p_4Pxn2p94&sig=03gXJvgcFI7_RI8OWXenV7W9LdU#v=onepage&q&f=false

6 Lynn Stout (2012)
The Shareholder Value Myth: How Putting
Shareholders First Harms Investors, corporations and the public. Pp.32
Available at: http://scholarship.law.cornell.edu/cgi/viewcontent.cgi?article=2311&context=facpub

 

7 La Porta R,
Lopez-de-Silanes F and Shleifer A, (1999) 
‘Corporate Ownership Around the
World’ 54 Journal of Finance. Pp 475-477. Available at: http://onlinelibrary.wiley.com/doi/10.1111/0022-1082.00115/pdf

 

8 La Porta R, Lopez-de-Silanes F and
Shleifer A, (1999)  ‘Corporate Ownership Around the World’ 54 Journal of Finance. Pp
475-477. Available at: http://onlinelibrary.wiley.com/doi/10.1111/0022-1082.00115/pdf

 

9 Revista Dinero
(2017) El poder de las juntas directivas
(The power of the boards of directors) Colombia. Available at: http://www.dinero.com/edicion-impresa/caratula/articulo/que-esta-pasando-con-las-juntas-directivas-en-colombia/242933

10 G. Jackson, (2005). Employee
representation in the board compared: A fuzzy sets analysis of corporate
governance, unionism and political institutions. Industrielle Beziehungen. Pp.
8-15.  Available at: http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.447.696&rep=rep1&type=pdf

 

Since the end of the 90s,
great efforts have been made nationally and internationally to establish
regulations for corporate governance and establish codes of “best
practices”9.
Of course these codes in most of the countries being guides and not true
normal. Such efforts reflect, to a large extent, a particular notion of
corporate governance that includes several elements: the protection of the
investor through mechanisms that guarantee the transparency of business and the
rights for minority shareholders; boards of directors constituted by
independent external directors; and, the importance of shareholder value as a
criterion for the management of decision-making processes. Although on some
occasions there is a brief mention of other interest groups, the great debate
about corporate governance has been kept aside from any explicit notion of the
various alternative modalities of employee participation in said organizational
instance. Some more traditional explanations about the representation of
workers on the board of directors focus on the comparative strengths of unions
in different countries10.
As long as unions try to obtain better wages and working conditions for their
members, they may also demand rights to participate in the decision-making
process of the company. The foregoing evidences a widely known duality, on the
one hand, there is the direct representation of the employees within the board
of directors and on the other, and there is the creation of a union of
employees which works parallel to the board of directors. Situations that are
mainly contraries since the purpose of the primary is to involve the employees
in the decision making of the company that is to say the course of the same and
the second scenario the creation of the union mainly looks for the respect of
the rights of the workers and in some way to improve their working conditions.

On the other hand, the
controlling shareholders typically have control over firms considerably in
excess of their cash flow rights. This is because they often control large
firms through pyramidal structures and also because they manage the firms they
control7.
As a consequence, large firms have a problem of separation of ownership and
control. These firms are run not by professional managers without equity
ownership who are unaccountable to shareholders, but by controlling
shareholders. As a La Porta R said “These
controlling shareholders are ideally placed to monitor the management, and in
fact the top management is usually part of the controlling family, but at the
same time they have the power to expropriate the minority shareholders as well
as the interest in so doing. Cash flow ownership by the controlling shareholder
mitigates this incentive for expropriation, but does not eliminate it. As a
consequence, equity markets are both broader and more valuable in countries
with good legal protection of minority shareholders”8
Reason why in the last years there have been several efforts concerning to creating
a better managing of the companies, since the companies have a huge social
impact, so it must have a qualified leaders at it address. Other important
issue to build a better company and guarantee the rights of all the member of
the company, is with a good remuneration policy, beginning for members of the
board and key executives. If the  information about board members, including
their qualifications, the selection process, other company directorships and
whether they are regarded as independent by the board.

Today more than ever the
boards of directors are in the center of the corporate governance discussion, can the good management of the companies
part of its board of directors. This accounts for the importance and
responsibilities of a board of directors. It is the maximum governing body that
directs the organization, ensures the control and supervision of the general
management and must also establish where the company is going, how to make it
sustainable in the long term, as well as choose and remove the chief executive
officer (CEO)3.
Therefore, it is a mistake to leave management in the hands of management and
that shareholders and board members are passive subjects in decisions. But it
is even more worrying when the board of directors is mostly composed, not to
say completely by members of a single family, since the dependency is even
greater; so it is important to have the presence of independent members who can
controvert the administration, in which the future of the company is
conscientiously planned and not simply that it reviews the financial report,
well remunerated, with internal and external evaluation mechanisms, support
committees and in-depth discussions. Now another problem is the soft law or
soft law, since most of the countries only have guidelines on this issue and
not with a strict regulation. 4What
shows the lack of rigor in the design of regulations that define exactly how
the board of directors works, what are the responsibilities of its members and
the lack of adequate evaluation systems.5
However, although awareness of the importance of the board is still very
limited and is more visible in some economic conglomerates and family
organizations, there are more and more boards of directors made up of people
who can contribute to the business and who, even, they go beyond in the
business. As a Lynn Stout  said “As far as the law is concerned,
maximizing shareholder value is not a requirement; it is just one possible
corporate objective out of many6”,
The process of maturing
towards a better design within the company includes a greater interest in
linking independent members; that is, people with prestige and reputation who
are not representatives of the controlling shareholder, or employees, or
customers, who are not in the directory of a company that is a competitor, that
is, without conflicts of interest that prevent them from supporting the
company.

In effect, when there is a
positive environment in the Corporate Governance of the companies, investors
and foreign financing entities are more inclined to supply them with resources,
and in this way they access in better conditions of the financial system and
the international capital markets. These markets usually provide better
financing conditions. International markets mold rules that, being benchmarks
demanded by those who participate in such markets, end up reflected in the
performance of corporate governance of companies. This is the case of guidelines
on transparency and on the fulfillment of contracts, which are observed by
companies in a country encourages business to this. In effect, through
transparency, shareholders and other resource providers will feel better
informed to make better decisions; while greater security in the fulfillment of
contracts will reduce the perception of risks in business. Likewise, a business
context of good Corporate Governance practices means the presence of
financially and economically better directed and stable companies; being less
prone to contagion than economic crises which occurs when a company in trouble
affects other companies and therefore prevents the effect of the possible
banking crises, which when they occur affect us all to the deterioration of the
solvency of banks, harming the services they provide and putting at risk the
deposits we hold in them. One of the great lessons that international business
scandals leave behind, such as the collapse of Enron, Tyco, WorldCom and
Stanford, to name a few, is the need to have strong and professional boards
that guarantee the durability of the business and not a simple space of good
friends who applaud everything that the administration says or does2.

However, when there is a
positive environment in the Corporate Governance of the companies, investors
and foreign financing entities are more inclined to supply them with resources,
and in this way they access in better conditions of the financial system and
the international capital markets. . These markets usually provide better
financing conditions. International markets mold rules that, being benchmarks
demanded by those who participate in such markets, end up reflected in the
performance of corporate governance of companies. This is the case of
guidelines on transparency and on the fulfillment of contracts, which are observed
by companies in a country encourages business to this. In effect, through
transparency, shareholders and other resource providers will feel better
informed to make better decisions; while greater security in the fulfillment of
contracts will reduce the perception of risks in business. Also, a good
business context Corporate Governance practices means the presence of
financially and economically better-targeted companies, being less prone to
contagion than economic crises can cause (when a company in trouble complicates
the others), and therefore preventing the effect of any crisis banks, which
when they occur affect us all by reducing the solvency of banks, damaging the
services they provide and putting at risk the deposits we hold in them1.
Even when companies act for their own benefit, their joint behavior through its
Corporate Governance practices influence the economy as a whole; which in turn
impacts the process of growth and development of a country.

 In addition, this type
of company is a magnet for attracting more qualified professionals who join the
management or management of it. Likewise, a better management of Corporate
Governance by itself also implies that the company is better organized, plans
better its objectives and strategies, and responds with more efficiency in its
processes. In a few words it becomes more solid and competitive. On the
contrary, a company with marked deficiencies in its Corporate Governance will
have serious difficulties in interacting with its counterparts in the different
markets. Their suppliers or their potential financiers will remain distrustful
of the operations of said company and as such they will perceive it as a risky
situation, before which they will refrain from trading with it, or in doing so
they will raise very severe financial conditions (immediate distribution of
dividends, immediate payment or very short terms, high interest rates,
guarantee requirements, etc.). Companies in these circumstances will remain
pressed on a daily basis, and their chances of growth will be almost nil.

1 R Kraakman et al., (2009) The Anatomy of Corporate Law: A Comparative
and Functional Approach (2nd ed., Oxford University Press. Pp8-9. Available
at: https://books.google.co.uk/books?id=-1VnWGrgID0C&printsec=frontcover&source=gbs_ge_summary_r&cad=0#v=onepage&q&f=false 

 

2 Revista Dinero
(2017) El poder de las juntas directivas
(The power of the boards of directors ) Colombia. Available at: http://www.dinero.com/edicion-impresa/caratula/articulo/que-esta-pasando-con-las-juntas-directivas-en-colombia/242933

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

3 Jackson, G.
y Aguilera, R. (2010) Comparative and
international corporate governance. The Academy of Management Annals, 4
(1), 485-556.  Available at: https://s3.amazonaws.com/academia.edu.documents/36969657/Comparative_and_International_Corporate_Governance.pdf?AWSAccessKeyId=AKIAIWOWYYGZ2Y53UL3A&Expires=1516627794&Signature=g%2B96bAIyd5FJTA5TGMkaX1w3kAU%3D&response-content-disposition=inline%3B%20filename%3DComparative_and_International_Corporate.pdf

 

4 La Porta R, Lopez-de-Silanes F and
Shleifer A, (1999)  ‘Corporate Ownership Around the World’ 54 Journal of Finance. Pp
475-477. Available at: http://onlinelibrary.wiley.com/doi/10.1111/0022-1082.00115/pdf

5 Gospel, H. y
Pendleton, A. (2005). Corporate
governance and labour management: An international comparison. Oxford:
Oxford University Press. Available at: https://books.google.co.uk/books?hl=es&lr=&id=YR86f6u95asC&oi=fnd&pg=PR9&dq=Gospel,+H.+y+Pendleton,+A.+(eds)+(2005).+Corporate+governance+and+labour+management:+An+international+comparison.+Oxford:+Oxford+University+Press.+&ots=p_4Pxn2p94&sig=03gXJvgcFI7_RI8OWXenV7W9LdU#v=onepage&q&f=false

6 Lynn Stout (2012)
The Shareholder Value Myth: How Putting
Shareholders First Harms Investors, corporations and the public. Pp.32
Available at: http://scholarship.law.cornell.edu/cgi/viewcontent.cgi?article=2311&context=facpub

 

7 La Porta R,
Lopez-de-Silanes F and Shleifer A, (1999) 
‘Corporate Ownership Around the
World’ 54 Journal of Finance. Pp 475-477. Available at: http://onlinelibrary.wiley.com/doi/10.1111/0022-1082.00115/pdf

 

8 La Porta R, Lopez-de-Silanes F and
Shleifer A, (1999)  ‘Corporate Ownership Around the World’ 54 Journal of Finance. Pp
475-477. Available at: http://onlinelibrary.wiley.com/doi/10.1111/0022-1082.00115/pdf

 

9 Revista Dinero
(2017) El poder de las juntas directivas
(The power of the boards of directors) Colombia. Available at: http://www.dinero.com/edicion-impresa/caratula/articulo/que-esta-pasando-con-las-juntas-directivas-en-colombia/242933

10 G. Jackson, (2005). Employee
representation in the board compared: A fuzzy sets analysis of corporate
governance, unionism and political institutions. Industrielle Beziehungen. Pp.
8-15.  Available at: http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.447.696&rep=rep1&type=pdf

 

Since the end of the 90s,
great efforts have been made nationally and internationally to establish
regulations for corporate governance and establish codes of “best
practices”9.
Of course these codes in most of the countries being guides and not true
normal. Such efforts reflect, to a large extent, a particular notion of
corporate governance that includes several elements: the protection of the
investor through mechanisms that guarantee the transparency of business and the
rights for minority shareholders; boards of directors constituted by
independent external directors; and, the importance of shareholder value as a
criterion for the management of decision-making processes. Although on some
occasions there is a brief mention of other interest groups, the great debate
about corporate governance has been kept aside from any explicit notion of the
various alternative modalities of employee participation in said organizational
instance. Some more traditional explanations about the representation of
workers on the board of directors focus on the comparative strengths of unions
in different countries10.
As long as unions try to obtain better wages and working conditions for their
members, they may also demand rights to participate in the decision-making
process of the company. The foregoing evidences a widely known duality, on the
one hand, there is the direct representation of the employees within the board
of directors and on the other, and there is the creation of a union of
employees which works parallel to the board of directors. Situations that are
mainly contraries since the purpose of the primary is to involve the employees
in the decision making of the company that is to say the course of the same and
the second scenario the creation of the union mainly looks for the respect of
the rights of the workers and in some way to improve their working conditions.

On the other hand, the
controlling shareholders typically have control over firms considerably in
excess of their cash flow rights. This is because they often control large
firms through pyramidal structures and also because they manage the firms they
control7.
As a consequence, large firms have a problem of separation of ownership and
control. These firms are run not by professional managers without equity
ownership who are unaccountable to shareholders, but by controlling
shareholders. As a La Porta R said “These
controlling shareholders are ideally placed to monitor the management, and in
fact the top management is usually part of the controlling family, but at the
same time they have the power to expropriate the minority shareholders as well
as the interest in so doing. Cash flow ownership by the controlling shareholder
mitigates this incentive for expropriation, but does not eliminate it. As a
consequence, equity markets are both broader and more valuable in countries
with good legal protection of minority shareholders”8
Reason why in the last years there have been several efforts concerning to creating
a better managing of the companies, since the companies have a huge social
impact, so it must have a qualified leaders at it address. Other important
issue to build a better company and guarantee the rights of all the member of
the company, is with a good remuneration policy, beginning for members of the
board and key executives. If the  information about board members, including
their qualifications, the selection process, other company directorships and
whether they are regarded as independent by the board.

Today more than ever the
boards of directors are in the center of the corporate governance discussion, can the good management of the companies
part of its board of directors. This accounts for the importance and
responsibilities of a board of directors. It is the maximum governing body that
directs the organization, ensures the control and supervision of the general
management and must also establish where the company is going, how to make it
sustainable in the long term, as well as choose and remove the chief executive
officer (CEO)3.
Therefore, it is a mistake to leave management in the hands of management and
that shareholders and board members are passive subjects in decisions. But it
is even more worrying when the board of directors is mostly composed, not to
say completely by members of a single family, since the dependency is even
greater; so it is important to have the presence of independent members who can
controvert the administration, in which the future of the company is
conscientiously planned and not simply that it reviews the financial report,
well remunerated, with internal and external evaluation mechanisms, support
committees and in-depth discussions. Now another problem is the soft law or
soft law, since most of the countries only have guidelines on this issue and
not with a strict regulation. 4What
shows the lack of rigor in the design of regulations that define exactly how
the board of directors works, what are the responsibilities of its members and
the lack of adequate evaluation systems.5
However, although awareness of the importance of the board is still very
limited and is more visible in some economic conglomerates and family
organizations, there are more and more boards of directors made up of people
who can contribute to the business and who, even, they go beyond in the
business. As a Lynn Stout  said “As far as the law is concerned,
maximizing shareholder value is not a requirement; it is just one possible
corporate objective out of many6”,
The process of maturing
towards a better design within the company includes a greater interest in
linking independent members; that is, people with prestige and reputation who
are not representatives of the controlling shareholder, or employees, or
customers, who are not in the directory of a company that is a competitor, that
is, without conflicts of interest that prevent them from supporting the
company.

In effect, when there is a
positive environment in the Corporate Governance of the companies, investors
and foreign financing entities are more inclined to supply them with resources,
and in this way they access in better conditions of the financial system and
the international capital markets. These markets usually provide better
financing conditions. International markets mold rules that, being benchmarks
demanded by those who participate in such markets, end up reflected in the
performance of corporate governance of companies. This is the case of guidelines
on transparency and on the fulfillment of contracts, which are observed by
companies in a country encourages business to this. In effect, through
transparency, shareholders and other resource providers will feel better
informed to make better decisions; while greater security in the fulfillment of
contracts will reduce the perception of risks in business. Likewise, a business
context of good Corporate Governance practices means the presence of
financially and economically better directed and stable companies; being less
prone to contagion than economic crises which occurs when a company in trouble
affects other companies and therefore prevents the effect of the possible
banking crises, which when they occur affect us all to the deterioration of the
solvency of banks, harming the services they provide and putting at risk the
deposits we hold in them. One of the great lessons that international business
scandals leave behind, such as the collapse of Enron, Tyco, WorldCom and
Stanford, to name a few, is the need to have strong and professional boards
that guarantee the durability of the business and not a simple space of good
friends who applaud everything that the administration says or does2.

However, when there is a
positive environment in the Corporate Governance of the companies, investors
and foreign financing entities are more inclined to supply them with resources,
and in this way they access in better conditions of the financial system and
the international capital markets. . These markets usually provide better
financing conditions. International markets mold rules that, being benchmarks
demanded by those who participate in such markets, end up reflected in the
performance of corporate governance of companies. This is the case of
guidelines on transparency and on the fulfillment of contracts, which are observed
by companies in a country encourages business to this. In effect, through
transparency, shareholders and other resource providers will feel better
informed to make better decisions; while greater security in the fulfillment of
contracts will reduce the perception of risks in business. Also, a good
business context Corporate Governance practices means the presence of
financially and economically better-targeted companies, being less prone to
contagion than economic crises can cause (when a company in trouble complicates
the others), and therefore preventing the effect of any crisis banks, which
when they occur affect us all by reducing the solvency of banks, damaging the
services they provide and putting at risk the deposits we hold in them1.
Even when companies act for their own benefit, their joint behavior through its
Corporate Governance practices influence the economy as a whole; which in turn
impacts the process of growth and development of a country.

 In addition, this type
of company is a magnet for attracting more qualified professionals who join the
management or management of it. Likewise, a better management of Corporate
Governance by itself also implies that the company is better organized, plans
better its objectives and strategies, and responds with more efficiency in its
processes. In a few words it becomes more solid and competitive. On the
contrary, a company with marked deficiencies in its Corporate Governance will
have serious difficulties in interacting with its counterparts in the different
markets. Their suppliers or their potential financiers will remain distrustful
of the operations of said company and as such they will perceive it as a risky
situation, before which they will refrain from trading with it, or in doing so
they will raise very severe financial conditions (immediate distribution of
dividends, immediate payment or very short terms, high interest rates,
guarantee requirements, etc.). Companies in these circumstances will remain
pressed on a daily basis, and their chances of growth will be almost nil.

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