Good Corporate Governance: Meaning and features
In recent times, the term “corporate governance” has received a significant amount of attention. However, more than a mere buzzword, it is a reality and undeniably a necessity. In the modern borderless world, investors are willing to invest in any company, regardless of its domicile, provided its governance practices are transparent and fairly established. The purpose of corporate governance is to achieve a responsible value-oriented management and control of a corporation. This aids in promoting and reinforcing the confidence of current and future shareholders, lenders, employees, business associates and general public. It is basically the mechanism through which control is monitored and held to fairly enhance the corporate profits and shareholder’s gains.
Good Governance is integral to the existence of a company. It inspires and strengthens investor confidence by ensuring company’s commitment to higher growth and profits. It aims at the maximisation of long-term value and shareholder’s wealth. It aids the installation of a properly structured board which is capable of taking independent and objectives decisions. It ensures a properly balanced board having representation of an adequate number of non-executive independent directors capable of taking care of the interests of all the stakeholders. Good Governance facilitates the exercise of effective control on corporate affairs by the board at all times and takes care of the effective and regular monitoring of management functioning by the Board. It endeavours the adoption of transparent procedures and practices in decision-making by an informed committee of board members. Accountability is yet another important feature of good governance through which the Individuals or groups in a company, who make decisions and take actions on specific issues, are accountable for their decisions and actions.
Good Corporate Governance helps to insure that the corporation takes into account the interests of a wide range of constituencies and that board are accountable to the company and the shareholders. This in turn helps to maintain confidence of investors-both foreign and domestic and attract more long term capital. High governance standards are an important factor in attracting and retaining investors in global capital markets. Many companies highlight their good corporate governance standards to differentiate themselves from other capital seekers. Stock markets reflect the advantages of good governance available to a company. Bad governance practices negatively affect returns on investment in many countries. These may also contribute to large systematic problems at national and regional levels. Therefore, good governance of corporations is imperative for all the times.
