Business Firm Governance

Business firms play an important role in economic development, providing opportunities for employment, value adding goods and services and realising the potential of employees to live good lives. Business firms primarily exist from the reduction of transaction cost in producing goods and services compared to that by the markets. Business interactions between firms are governed by incomplete contracts with long-term trust-based relationships fostered through cooperation and reciprocation especially during economic shocks. Corporate governance through board of directors (BOD) acting as guardians on behalf of shareholders guide CEO and management team to build long-term shareholder value whilst abiding by laws and regulations. Good corporate governance reduces negative externalities and fosters positive spillover through innovations. A combination of financial and non-financial incentives can be used to align employees and firm leaders with achievement of firm goals. Active enforcement of internal controls, risk management and compliance to laws and regulations reduce occurrence of agents acting in their own interests at the expense of long-term shareholder value creation. Common governance challenges include bribery, minimum wage, equity, diversity and inclusion, downsizing and various forms of harassments.