The governance mechanisms described are designed to ensure that the agents of the firm’s owners-the corporation’s top executives-make strategic decisions that best serve the interests of the entire group of stakeholders, In the United States, shareholders are recognized as a company’s most significant stakeholder. Thus, governance mechanisms focus on the control of managerial decisions to ensure that shareholders’ interests will be served, but product market stakeholders (e.g., customers, suppliers, and host communities) and organizational stakeholders(e.g., managerial and non managerial employees) are important as well.
The firm’s strategic competitiveness is enhanced when its governance mechanisms take into consideration the interests of all stakeholders. Although the idea is subject to debate, some believe that ethically responsible companies design and use governance mechanisms that serve all stakeholders’ interests. There is, however, a more critical relationship between ethical behavior and corporate governance mechanisms. The Enron disaster illustrates the devastating effect or poor ethical behavior not only on a firm’s stakeholders, but also on other firms.
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