What is Corporate governance | Definition, Principles and Benefits? Corporate governance broadly refers to the mechanisms, processes, and relations by which corporations are controlled and directed.Governance structures and principles identify the distribution of rights and responsibilities among different participants in the corporation (such as the board of directors, managers, shareholders, creditors, auditors, regulators, and other stakeholders) and include the rules and procedures for making decisions in corporate affairs.Corporate governance includes the processes through which corporations’ objectives are set and pursued in the context of the social, regulatory and market environment.
Corporate Governance is the interaction between various participants (shareholders, the board of directors, and company’s management) in shaping corporation’s performance and the way it is proceeding towards. The relationship between the owners and the managers in an organization must be healthy and there should be no conflict between the two. The owners must see that individual’s actual performance is according to the standard performance.
Principles of Corporate Governance
Shareholder recognition is key to maintaining a company’s stock price. More often than not, however, small shareholders with little impact on the stock price are brushed aside to make way for the interests of majority shareholders and the executive board. Good corporate governance seeks to make sure that all shareholders get a voice at general meetings and are allowed to participate.
Stakeholder interests should also be recognized by corporate governance. In particular, taking the time to address non-shareholder stakeholders can help your company establish a positive relationship with the community and the press.
Board responsibilities must be clearly outlined to majority shareholders. All board members must be on the same page and share a similar vision for the future of the company.
Ethical behavior violations in favor of higher profits can cause massive civil and legal problems down the road. Underpaying and abusing outsourced employees or skirting around lax environmental regulations can come back and bite the company hard if ignored. A code of conduct regarding ethical decisions should be established for all members of the board.
Business transparency is the key to promoting shareholder trust. Financial records, earnings reports, and forward guidance should all be clearly stated without exaggeration or “creative” accounting. Falsified financial records can cause your company to become a Ponzi scheme, and will be dealt with accordingly.
Professional Guidance: Both outside legal counsel and independent accountants ensure that effective governance practices and regulations are followed.
Dedicated Internal Compliance Resources: Cognizant employs a General Counsel, Chief Compliance Officer, and Chief Security Officer. These individuals and their staffs serve to ensure that management and Associates are in compliance with all internal policies and external laws and regulations.
Benefits of Corporate Governance
- Good corporate governance ensures corporate success and economic growth.
- Strong corporate governance maintains investors’ confidence, as a result of which, the company can raise capital efficiently and effectively.
- It lowers the capital cost.
- There is a positive impact on the share price.
- It provides a proper inducement to the owners as well as managers to achieve objectives that are in interests of the shareholders and the organization.
- Good corporate governance also minimizes wastages, corruption, risks and mismanagement.
- It helps in brand formation and development.
- It ensures organization in managed in a manner that fits the best interests of all.
Corporate accountability is the performance of a publicly traded company in non-financial areas such as social responsibility, sustainability, and environmental performance. Corporate accountability espouses that financial performance should not be a company’s only important goal and that shareholders are not the only people a company must be responsible to; stakeholders such as employees and community members also require accountability.
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