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Corporate governance refers broadly to the rules, processes, or laws by which businesses

are operated, regulated, and controlled. The term can refer to internal factors defined by

the officers, stockholders or constitution of a corporation, as well as to external forces

such as consumer groups, clients, and government regulations (Doremus P.I, Keller W.

W, 1999).The main objectives of Corporate Governance are: Fulfilling long-term

strategic goals of owners, and maintaining excellent relations with customers and

suppliers.

Corporate Governance practices are important to encourage investment in a country.

Effective Corporate Governance leads to the efficiency of a business enterprise, to the

creation of wealth of stakeholders and to the countries economy. Inthe report of Kumar

Mangalam Birla committee on Corporate Governance it stated that strong Corporate

Governance was a precondition for the development of capital market and was an

important instrument of investor protection.

The main constituents of Corporate Governance are the shareholders, the board of

directors and the management. The Board of Directors is responsible for the governance

of the company. The board members set the strategic objectives, frame financial as well

as other policies and oversee the implementation thereof. The shareholder¶s role in

enabling good governance is to identify and elect the directors. The responsibilities of the

senior management include ensuring that control systems are in place to achieve the

objectives laid down by the Board and help the board to discharge its responsibilities to
the shareholders effectively.

Investors primarily consider two variables before making investment decisions: the rate

of return on invested capital and the risk associated with the investment. In recent years,

the attractiveness of developing nations as a destination for foreign capital has increased,

partly because of the high likelihood of obtaining robust returns and partly because of the

decreasing attractiveness of developed nations (Bhat V., 2007).

The existence of a corporate-governance system is a part of the decision-making process

of selecting a company to invest in. Therefore firms that are more open and transparent,

and thus well governed, are more likely to raise capital successfully because investors

will have the information and confidence necessary for them to lend funds directly to

such firms. Moreover, well- governed firms likely will obtain capital more cheaply than

firms that have poor corporate-governance practices because investors will require a

smaller risk premium for investing in well-governed firms (Bhat V., 2007).

Corporate governance needs a certain level of government oversight to avoid increasing

levels of corruption. This especial in corporate finance and banking

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Corporate Jamaica has been generally slow to institute internal corporate

governance principles, though legislative response was swift on the heels of the

corporate failures of the 1990's. The response included amendments to the

Banking Act and the Financial Institutions Act; the passage of a new Insurance

Act and regulations, the Financial Services Commission Act and the Securities Act
and regulations (Wright K. P. 2003).

However, in recognition that corporate governance has a critical role to play in the

economic development and prosperity of Jamaica, the Private Sector Organization

of Jamaica (PSOJ) set up a committee of corporate governance in 2001. Its

principal output is a draft Code on Corporate Governance that is based on the UK

Combined Corporate Governance Code of 2003 (Singh P.,Vardhan J. 1999).

The code states that every company should be led by Directors, which are collectively

responsible for promoting the success of the company by directing and supervising the

company¶s affairs. Because most of the companies in Jamaica are small businesses they

are unable to have this elaborate structure with directors and as suchmany small

companies have one single person acting as director.

On the other hand there are several companies who have detailed structures of corporate

governance. National Commercial Bank, The Bank ofNova Scotia, and Jamaica Public

Service are such companies and they have between 12 to 18 directors.

It most be noted that for a companies to benefit from corporate governance it must have

an effective board. Assuch there are many companies in Jamaica that operate by

corporate governance but due to the ineffective board or directors the company is unable

reapthe full benefits of this regulatory practice. One also has to take into consideration

that even though corporate governance does not ensure the success of a company, it

increases the likelihood of the company¶s success.

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The basic philosophy of corporate governance is to achieve business excellence and

enhance stakeholder¶s value while keeping in view the need to balance the interests of all

stakeholders. Ideals of corporate governance primarily need transparency, full disclosure,

fairness to all stakeholders and effective monitoring of the state of corporate affairs.

Due to the nature of Jamaica economy, consisting largely of small businesses, it is not

feasible for many companies to apply corporate governance because of the size of the

company. It must be noted that they are a lot of companies in Jamaica that are benefiting

from good corporate governance. The main component in the success of good corporate

governance as seen in these companies is the board of directors.

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Anonymous,( 2006), ³Corporate Governance by Nation Commercial Bank Jamaica

Limited´, Retrieve on November 10, 2010, From
http://www.jncb.com/corp_info/governance.asp

Anonymous,( 2001),´The Private Sector Organization of Jamaica Code on Corporate

Governance, Retrieve on October 29,2010 from
http://www.ecgi.org/codes/documents/jamaica_code_final_25oct2006.pdf

Bhat V.,(2007), ³Corporate Governance in India: Past, Present, and Suggestions

for the Future´ Retrieve on November 10, 2010, From
http://vlex.com/vid/governance-india-past-present-suggestions-
5135#ixzz14vifOrxv
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Doremus P.I, Keller W. W, (1999), ³The myth of the global corporation´,Princeton

University Press.c

India Reports On Corporate Governanceby Kumara Mangalam Birla Committee on

Corporate Governance (2000), Retrieve on November 2,2010 from:

http://www.sebi.gov.in/commreport/corpgov.html

Singh P.,Vardhan J. (1999),´Corporate Governance" Retrieve on October 29,2010 from

www.ballbhonsau.org/Law_files/cg.doc
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Wright K. P. (2003).³Reflections on corporate governance´. Retrieve on November
10,2010,From
http://www.jamaica-gleaner.com/gleaner/20031017/business/business4.html