Ownership and firm performance in Gulf countries Dissertation

Ownership and firm performance in Gulf countries - Dissertation Example 1.1 Background In 1932, Berle and Means published The Modern Corporation and Private Property which argued that the modern American business of the 1930s was better off if there was a separation of ownership and control. This created the grouping of the representation of shareholders and managers into distinct classes to promote efficiency and effectiveness. The idea was rooted in the fact that there were many large and expanding corporations growing in America who had unaccountable managers. Hence, the popular calls of sociologists (particularly political scientists who believed in the separation of powers) and lawyers (who saw the dangers of rights without obligations to account for the use of rights) culminated in Berle and Means' article which argued for the separation of powers between shareholders and managers in order to create a system of accountability. Indeed, the concept of separating the role of owners from the activities of managers thrived for the decades after the 1930 s. Jensen and Meckling (1976) defined the agency theory as was based on the presumption that there is a conflict of interest in the different aspects of a given company or corporate entity. Shareholders, corporate managers and creditors of the business had different processes interests and visions that they sought to attain by their association with a given corporate entity. In their views, Jensen and Meckling argued that where the interest of managers and other stakeholders can be achieved without attaining the interest of the shareholders or the business. Hence, there is the need for some kind of checks and balances to ensure that the goal of managers are merged with the best interest of the company or the business. Hence, there was the need for some degree of checks and control. However, â€Å"the â€Å"shareholder value† movement of the past generation has succeeded in turning managers into faithful servants of share price maximisation, even when this comes at the expens e of other considerations† (Davis, 2011). In other words, after the 1990s, the main barometer that was used to gauge the efficiency of a manger was his ability to maximise share value returns. This led to the use of negative attitudes and negative approaches to management. These managers sought to use ways and means to maximise share value through the disregard of standards, corrupt practices and other illegitimate methods to ensure that they presented good financial statements that did not necessarily show the real activities in the period in question. The culture of shareholder value maximisation at the expense of important considerations led to major corporate scandals like the Enron scandal which led to the surprising collapse of a company that was known to have healthy annual reports. This led to the popular implementation of corporate governance standards in corporate entities around the world. This has come up as a method of controlling and running entities throughout t he world. After corporate governance became the norm and conventional approach after the major financial crises, most countries and most communities adopted corporate governance systems and structures. The Gulf Corporation Council (GCC) nations naturally applied elements and aspects of corporate governance due to the pressures of globalisation and internationalisation which hit the world in the 1990s and the early part of the