Arguably, strategic management is one of the modern establishments in all economic sectors, especially in large firms. In U.S most large firms have advocated for development and use of strategic systems which include planning, implementation, organizational capacity, customer’s linkage, as well as pragmatism. Over governance and under governance of U.S large firms by corporate governance still exist. The mechanisms affect firm value, organization of the firm, markets, and market liquidity.
Most of the firms in U.S have been over governed by corporate governance, while others have been under governed. The corporate governance mechanism has led to diversity in the level of governance. It consists of laws, policies, institutions, and customs which control, direct and administer firms. In most cases firms have been over governed by policies and laws. In U.S some firms are controlled by laws, hence weakening the entire process of change in the large firms, (Gillan & Chew, 2009). Director and managers of big U.S firms face senators, presidents, and cabinet secretaries who in one way or another can cause changes in the firm; hence, they fall victims of bribe and lobby.
Additionally, U.S equity system involving corporate governance always gives a boost to capital markets and weakens institutional markets of the firms. Shareholders of a firm are very powerful in U.S, hence they have lots of powers to make changes or propose changes in the firm. This is a clear indicator of over governance. The managers and directors are not given full power to run firms. Shareholders with high number of shares will always have power over those other shareholders with least number of shares. This will lead to one sided decisions and opinions in the firm, (Gillan & Chew, 2009).
Government laws in U.S affect the entire production of firms. Through setting of standards as well as policies firms have no powers to go beyond the laws despite the existing economies of scale. Furthermore, U.S experiences outsider systems of governance in most large firms. These systems lead to disagreement between weak shareholders and strong managers, (Gillan & Chew, 2009). The shareholder model focuses on the interest of the shareholders, the directors and managers have no option but to work towards the interest of shareholders. In this scenario the entire goal of the firm, which is to maximize profits is not achieved.
Generally, large firms in U.S have either been under governed or over governed by some corporate governance. The impacts of this governance mechanism have posed lots of challenges to most U.S large firms. Some of the consequences include poor production, divergence from the ultimate goal of firms as well as growth of firms.
Gillan, L & Chew, D. (2009). Global Corporate Governance. New York. Colombia University