Ivan Ionela1 Ivan V.

Ionela

My scenario for the future governance in the global economy

Defining corporate governance is a good point to start with. There have been many attempts to reveal the importance of governance and every time they started with emphasizing how it should enhance investors confidence in the companys financial reports. When corporations are properly governed, the financial results are reported accurately. But why is that? Corporate governance is a process and a system and as with any system, it has many parts.Both internal and external actors of a company can have a role in governance. The most prominent group of actors in corporate governance is the companys directors. Directors are collectively responsible for the companys performance, controls, compliance and behaviour. This means that the board of directors must discuss and agree strategies to maximize the longterm returns to the companys shareholders. They must also comply fully with relevant regulatory requirements that will include legal, accounting and governance frameworks. Legislation requires that directors conduct their activities in a professional manner, and allows for the possibility that they can be charged with negligence in the discharge of their duties. Although it seems that directors take into account the wider effects of their decisions, they are more concerned about satisfying the shareholders interest, and this way their own interest. This is where corporate governance intervenes trying to find a way of enforcing directors duties to the wider community. For example, the accountancy profession has a responsibility to act in the public interest. Therefore, a professional accountants responsibility is not exclusively to satisfy the needs of an individual client or employer.The public interest is considered to be the collective well-being of the community of people and institutions the professional accountant serves, including clients, lenders, governments, employers, employees, investors, the business and financial community and others who rely on the work of professional accountants. The future of governance and accounting should be based on the following principle: accountants and directors need to realise the importance of having and following a code of ethics because many people rely on them. Each situation is likely to be different. High-profile failures in both the corporate and public sectors are often underpinned by poor standards of behaviour, weak cultures and even

Ivan Ionela2 corruption. Disasters may occur because of poor ethical governance and standards of behaviour. Thats why the future governance in the global economy should not permit these things to occur anymore, by taking the necessary measures to fight against poor or bad practices. There is a need for a constant surveillance and this is when other actors enter the stage the auditors. The most obvious role of audit in corporate governance is to report to shareholders that, having audited the companys accounts, the accounts are accurate (a true and fair view is the term used in some countries). Audit is also a legal requirement in compliance with company law as a condition of company registration and the granting of limited liability. In addition to a normal audit, however, auditors perform a vital service to shareholders in highlighting issues in the governance and reporting of the company. A qualified audit report, while being a serious matter for a company, is also an important signal to markets about the company. Some auditors alsooffer additional services to clientsand these sometimes includesocial and environmental adviceand audit. It is generally believed that the profit motive, created by the agency relationship in a conventional shareholderdirector arrangement, creates and stimulates greater economic efficiency than in nationalised companies. Governments control corporate governance through the imposition of legislation and the enforcement of common and statute laws. Although governments usually have a range of political and social objectives in mind when controlling business, they also rely heavily on tax revenues levied on company profits and, where relevant, sales and other transaction taxes. One reason for the deregulation of much economic activity is the need to increase tax revenues and create employment by gaining the economic efficiencies offered by competition and executive reward packages that are aligned to added shareholder value. But chasing the profit may transform the company into a monster because the best thing to chase is the quality of the services provided and the good reputation, in order to bring added value to every stakeholder, not only the shareholders. Having a look at the problems with global governance and the consequences of these problems is easy because they seem to be better understood. Once an issue is understood, it should be simple to act; unfortunately this is where the principle easy to say, hard to do applies. The closer integration of the countries of the world, that is globalization, has given rise to a greater need for collective action. Globalization implies the emergence and development of

Ivan Ionela3 global cooperation. The major problem in the current international economic system of governance without government is that no effective means exist for assembling the necessary resources for financing the global cooperation. My scenario for the future governance includes a picture where everyone tries to help each other, not expecting anything in return. So the principle, if you scratch my back, Ill scratch yours should be replaced by the following one: I want to consider that you are part of the system the global economy and together we must try to improve the way this system works until we make it perfect. Globalization is progressing, and it results in greater integration of countries of the world which therefore become closer to each other. This closer connection, made possible thanks to the reduction of transportation and communication costs, as well as the elimination of numerous institutional barriers, turns the way in which every company is conducted a much more central problem. As this global economy strengthens, the need for collective action becomes even more pressing because it is hard to find a way to conduct every company using the same methods. To be able to exist, this collective action nevertheless requires decision-making mechanisms which are called "governance". However, the international system developed for this purpose is a global governance system. The challenges of risk governance have several important implications for the global governance of increasingly complex risk parameters in the context of climate change.While many international organizations and legal regimes are slow to change, global governance is not static.Global governance proceeds at different levels and engages a broadening array of actors. Increasingly, for instance, there is direct interaction and cooperation among national regulatory agencies and also through networks of officials collaborating across borders. Climate change amplifies the degree to which decision-makers face risks that are complex and involve extremely high levels of uncertainty. Meanwhile, many long-standing governance challenges arising from imbalances of power and inequality continue to get in the way of the ability of countries to foster effective international cooperation. To address the challenges posed by increasingly complex risk parameters, the international community will need to focus on many of those aspects of global governance where performance has been very weak to this point, such as burden-sharing, coordination, monitoring, information-sharing, capacity building and multi-stakeholder engagement.

Ivan Ionela4 If a new kind of governance arrangement is born in order to improve the adaptability of international organizations and legal regimes and maintain accountability, representation and legitimacy at a high level, many problems can be resolved. In its Principles of Corporate Governance, the OECD acknowledges that: "Good corporate governance should provide proper incentives for the board and management to pursue objectives that are in the interests of the company and its shareholders and should facilitate effective monitoring." Clearly, it is not in the best interests of the company for it to go out of business. So it is not the principle that should be in the center of debate here, but the implementation. While the board, management - and even the shareholders - may feel that remuneration is fair, it is clear that current corporate policy is not in line with public perception. The importance of corporate governance could be restated as the importance of good management. Good governance is actually just good management and a failure of governance is a failure of management. It is not right that poor management is rewarded, instead of being punishedand this situation has to be changed. To conclude, my scenario for the future governance in the global economy ends with the picture of a school where managers are taught how to run companies following the main principle: It is best to care about everyone, because everyone is important! Finally, using different methods teachersmake the directors understand that they have duties to the wider community, as well.