I. Some Risks of Poor Corporate Governance

RISK OF POOR CORPORATE
GOVERNANCE:
This report details the potential endangerment of poor corporate governance, relying on features
of them in the previous part, an understandable example of failure of a company with poor
governance is also added:
I. Some risks of poor corporate governance:
1. Risk of Bankruptcy:
Bankruptcy is an influential process that no company wants to go through. Shareholders may lose value,
bondholders only received a small percentage of their investment, and retired employees' health benefits
were reduced after the bankruptcy.
Despite the fact that this tendency has been noticed in recent high-profile bankruptcy cases, there has
been little research on the impact of corporate governance on bankruptcy risk
.
Corporate governance refers to how a board directs and manages the corporation, taking into account the
impact of decisions on employees, customers, suppliers, communities and shareholders.
As numerous examples from the recent financial crisis showed, the absence of corporate governance
principles, for example, openness, honesty, transparency, trustworthiness, and accountability undermines
a company's financial viability, and it also can lead to its eventual downfall. It may also cause an increase
in corruption and a lack of accountability for public funds. This is frequently due to the board's or
management's professional behavior falling short of what is required. 1
When it comes to board size and composition, boards must consider the specific needs of their
companies. The size of the company, its industry, strategic needs, and its stage in the business cycle all
play a role in determining the smallest number of board directors required to perform at its best.
Businesses change over time, so they must constantly assess how many directors they really require.
Therefore, boards that fail to evaluate the organization's operations and risks in a methodical manner are
plainly ineffective. It is often owing to a lack of knowledge that adequate supervision is not carried out. 2
Last but not least, organizations with poor corporate governance practices frequently focus unduly on a
particular project while ignoring other ventures with lower risk. Putting too much time, effort, and money
into a single project can jeopardize a company's long-term viability.
All-in-all, it can be seen that poor corporate governance may lead to many bankruptcy risks for the
company, due to the lack of knowledge, vision, and transparency in work.
1
M. Krambia-Kapardis, “Corporate Fraud and Corruption” p.57 (2016)
2
Nicholas J., “Best Practices: Board Size and Corporate Governance” (2017)
2. Risk of Inimical to shareholders’ interest
The market views superior financial performance as being beneficial to the shareholders’ interest for the
reason that it enhances the return of capital employed or deployed by the shareholders. 3
Management that makes actions that are detrimental to shareholders' interests is penalized by the market,
putting its position in management at jeopardy. Boards of directors who disregard shareholder interests
are also susceptible to market sanctions.
Therefore, lack of great corporate governance may lead to a decline in interest rates among shareholders,
as well as a drop in the value of the company's stock.
3. Risk of investors’ faith in a company

Accountability, openness, responsibility, and fairness are at the heart of good government. This is more
appropriate when corporate governance is seen as the group of institutional practices and mechanisms in
the process of adopting corporate decisions that facilitate the permanent creation of value in a frame of
transparency, ethics and corporate responsibility, by aligning different interests and promoting the respect
of the rights of every shareholder and stakeholder that directly or indirectly participates in the company 4
Due to the administrators' lack of expertise and professionalism, work will be delayed, as well as a lack of
transparency in financial matters. That may lead to misuse of investor funds, or other serious regulatory
reasons.
II. An example of poor corporate governance:

 Sports Direct:
Sport direct is a company that provides sports products such as Nike, Adidas… In 2016, the poor working
conditions was highlighted at the warehouses of retailer Sports Direct, by the Business, Innovation and
Skills Committee (ISC).
The corporation was accused of various shortcomings in the report, including paying employees less than
minimum wage and disciplining employees for taking water breaks or sick days. One employee
apparently gave birth in a toilet because she was frightened of missing her shift, according to one
harrowing account.
Therefore, Sports Direct took a series of steps to address its problems. In its annual report, the business
revealed that its staff are now able to give feedback online and flag issues of concern, workers at the
retailer’s warehouse can now liaise with the management director in monthly meetings and a new health
and wellbeing service for staff has been launched.
In conclusion, it is clear that poor governance can cause many serious consequences, and it needs to be
detected and corrected in time to avoid risks to the company.
3
F Ajogwu, “THE COST/CONSEQUENCES OF BAD CORPORATE GOVERNANCE” (2019)
4
Hugo Caneo, Competition and Corporate Governance in Chile, OECD Hearing on Competition and
Corporate Governance held in the Competition Committee meeting on 17 February 2010 p 43 at 44.
References:
M. Krambia-Kapardis. (2016). Corporate Fraud and Corruption. [pdf]. Springerlink. Available at:
https://link.springer.com/chapter/10.1057%2F9781137406439_3
Nicholas J. (2017). Best Practices: Board Size and Corporate Governance. [online]. Diligent Insight.
Available at: https://insights.diligent.com/board-diversity/best-practices-board-size-and-corporate-
governance/ [Accessed 25th Sep. 2017]
Hugo Caneo. (2010). Competition and Corporate Governance. [pdf]. ResearchGate. Available at:
https://www.researchgate.net/publication/228955278_Competition_and_Corporate_Governance
[Accessed Jan. 2010]
R.T.Hadani & C.F.Dharmastuti. (2015). How Do Corporate Governance Mechanisms Affect A Firm’s
Potential For Bankruptcy?. [pdf]. ResearchGate. Available at:
https://www.researchgate.net/publication/282989204_How_Do_Corporate_Governance_Mechanisms
_Affect_A_Firm's_Potential_For_Bankruptcy [Accessed Aug. 2015]
R. Shaker. [n.d]. BOARD SIZE, BOARD COMPOSITION AND PROPERTY FIRM PERFORMANCE .
[pdf]. Prres. Available at:
http://www.prres.net/papers/roselina_board_size_board_composition_and_property_firm.pdf

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RISK OF POOR CORPORATE

3. Risk of investors’ faith in a company

II. An example of poor corporate governance:

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