What is Corporate Governance? Why is Corporate Governance Importance for Business?

Corporate governance refers to the way a corporation is governed. With this technique, companies are directed and managed. Here, it means carrying the business as per the stakeholders. The organization is basically conducted by the board of directors and the concerned committees for the organization’s stakeholder’s benefit. Corporate governance is all about balancing individual and societal goals and economic and social goals.

The Oxford University Press Business English defined corporate governance as the way in which directors and managers take the helm of a firm and take steps mainly that have a major effect on the shareholders.

In other words, corporate governance in the business context is the systems of rules, practices and processes by which firms are governed. In this process, the corporate governance model followed by a specific company is the distribution of rights and responsibilities by all the participants under an organization.

An example of good corporate governance is a well-defined and enforced structure that works for everyone’s welfare by ensuring that the enterprise adheres to expected ethical standards, best practices formal laws. Generally, bad corporate governance is taken as poorly-structured, noncompliant; ambiguous that could affect the image or business’s financial health.

Why is Corporate Governance Importance for Business?

Corporate governance is considered as the cornerstone of any good business. The concept of corporate governance is becoming increasingly important in today’s organizations. Besides, here are some major points showing the importance of corporate governance for business:

Cultivate Good Company Culture

Strong and well-structured corporate governance is helpful in cultivating a company culture of integrity, leading to positive performance and a sustainable business overall. Essentially, it exists to boost the accountability of everyone and teams within your organization, working to avoid mistake before they even occur.

Symbolize Well-Managed Organization

Solid corporate governance in any company symbolizes that the organization is well-managed and that the interests of management are aligned with external stakeholders. And, in output, it provides your forms with a very strong competitive advantage.

Healthy Harmony

Corporate governance lays the accurately disciplined board and a healthy harmony between ownership and management that allows the management to take independent decisions with building trust between an organization and external shareholders of the organization.

Key Participants of Corporate Governance

  • Stakeholders: The stakeholders are the main owners of the organization providing capital to the firm instead of return received by them in dividends forms on the earnings of the company. The individual shareholders participate in corporate governance procedures by exercising their voting rights on the key decisions of the company are in the stakeholders’ interest. Some other institutional shareholders of the company include
  • Crucial for Mergers & Acquisitions: Corporate governance plays a major role in restructuring events like mergers and acquisitions. Corporate governance in a company does not only help to differentiate between good deals from bad one but M&A activity by a company with good corporate governance is better received by stakeholders in the market. Moreover, being mentioned is that M&A also have the power to enhance the quality of corporate governance of the organization.
  • Directors: The Board of Directors is the main, who bring and implement new corporate governance practice in the company. It makes sure that the right decisions are being made in favour of the organization. Director holds the power to set long term strategy and distribute the higher responsibilities to run the right governance structure. An Effective board leadership is able to tackle all kinds of company operations and monitor its performance in a fair and transparent way.
  • Officers and Key Managerial Personnel: Here, it includes the top management person like CEO, Director, MD, CS. They provide the brand with the right advice by which they can achieve the corporate goals by complying good governance in an organization.

Now, this is all about corporate governance. We hope, with this post, you got your answer- what is corporate governance? Why is corporate governance important?

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