Corporategovernance entails a system through which organizations are directedand managed. It determines how the objectives of the company are setand attained, the way risks are managed and assessed and howperformance is optimized. This is usually done to ensure thatstakeholders get the best out of their interest in the company. Thegovernment on the other hand has its own interest in ensuring thatbusinesses are run in the right manner.
Selfregulation is a concept that is advocated by corporate as theysupport that, the virtues of self regulation, otherwise known ascorporate social responsibility is self evident. According tosupporters of self regulation, it promises simultaneously toalleviate business fears of additional government interference and toregain public’s faith in business. Moreover, it asks of businessonly that it acts in its own enlightenment self interest. On theother hand, business cannot be expected to control themselves asthere is strong criticism against it. If businesses are allowed tocontrol themselves, then they would only act in a way that is ofinterest to them. They may end up hurting or being unfair tostakeholders including investors, consumers and the government atlarge. It is important to consider that, organizations are profitoriented and any move that they make be it in corporate socialresponsibility is aimed at attaining some economic gain. In the caseof Enron, the company reaped great profits from being allowed toregulate itself. In the effect, several areas were affected includingthe government losing greatly in form of taxes.
Globalizationand regulation affects both local and international investment. In aglobalised economy, countries seek to attract investors and secureemployment for its population. Therefore a country’s regulatoryframework is usually in competition with other nations’ regulatorysystems. For example, taxation system in one country must competewith other nations in order to maintain a fair ground, attractive toinvestors. Increased regulation is prohibitive to investors and acountry may lose. On the other hand, minimal regulations may resultto illegal practices by organizations seeking to maximize profitssuch as poor pay, health and safety as well as lack of concern forthe environment. This is why it becomes quite difficult forgovernments to regulate.
Onthe other hand, government regulation continues to proof beingdifficult for firms to comply. When the government sets standards fororganizations at home, at the era of globalizations, these standardsmay not apply in foreign countries. As much as organizations may bewilling to exercise or observe government regulations, the hostgovernments must also ensure that they will lay a fair ground for allplayers. For example western based organizations may have tightregulations on observing environmental issues and health and safetyof consumers, but in the international market particularly in thedeveloping world, such regulations may place them at a competitivedisadvantage. For example, it may be difficult to regulate Australiabased businesses in other countries. Such business may have legalconstrains in regard to wages, environmental standards and health andsafety. Regulating Australian businesses in such an environment tomeet home standards may put Australia’s business at an unfairground. This is called the assurance problem.
Ultimatelywhat a country chooses to regulate and how they go about itinfluences the future of the country. In the case of tobaccocompanies and the lawsuits concerning their involvement in healthissues of smokers, the government is also put to task as overtaxingsuch industries have a negative effect on revenue collection.Similarly, penalties imposed on violators of government regulationsmay be too minimal as compared to the benefits of non-compliance. Butall in all the government does not increase the penalties as doing sowill see collapse of violators. In the lawsuit in the tobacco case,the ordering of paying for Florida’s smokers’ health ofexorbitant amounts of money by the court is a clear indication of howregulation of businesses is a complex issue. With the cigarettecompanies observing all the rules and regulations of the governmentincluding a health warning, and to some extent ban on advertisementas it is in the United Kingdom, and the idea that smokers are ofmajority age, hence able to make sound or informed consentcomplicates the issue of who is responsible for the health effects ofsmoking.
Regulationof business is important in all aspects, even though there is a thinline between ethical practices in a business and the general goal ofthe business which is making profits. Various bodies and legislationsare put in place to oversee business operations. With the conflictinginterest between self regulation and regulation by the government,and the diversity of industries such as health consumer products and‘harmful’ consumer products such as cigarettes and alcohol,regulation issue becomes a delicate matter.