Corporate governance is of paramount importance to a company and is almost as important as its primary business plan. When executed effectively, it can prevent corporate scandals, fraud and the civil and criminal liability of the company. Corporate governance keeps a company honest and out of trouble. If this shared philosophy breaks down, then corners will be cut, products will be defective and management will grow complacent and corrupt.
The end result is a fall that will occur when gravity – in the form of audited financial reports, criminal and civil investigations – finally catches up, bankrupting the company overnight.
The Goals of Corporate Governance
Corporate governance consists of various duties, obligations, and rights that control and direct a corporation. The aim is to properly distribute the responsibilities that those who participate in the corporation have, such as the managers, stakeholders, creditors, regulators, and of course those in the board of directors. In addition to informing these people of their responsibilities, the corporate governance also informs people of their rights within the company.
When corporate governance is done properly, it allows the corporation to work smoothly due to the existence of a clear level of accountability and communication amongst the organization, as well as people understanding what their roles and responsibilities are.
The principles that the corporate governance follows and the people that these principles have an effect on:
An effective board should head each company. The Board should steer the company to meet its business purpose in both the short and long term.
The Board should have an appropriate mix of skills, experience and independence to enable its members to discharge their duties and responsibilities effectively.
The Board should communicate to the company’s shareholders and other stakeholders, at regular intervals, a fair, balanced and understandable assessment of how the company is achieving its business purpose and meeting its other responsibilities.
The Board should guide the business to create value and allocate it fairly and sustainably to reinvestment and distributions to stakeholders, including shareholders, directors, employees and customers.
The Board should lead the company to conduct its business in a fair and transparent manner that can withstand scrutiny by stakeholders.
Good governance is not simply a matter of compliance with regulatory requirements.