Corporate Governance: Meaning, Principles, And Importance

What is Corporate Governance?

The famous report on ‘The Financial Aspect of Corporate Governance’ which is popularly known as the Cadbury Report in 1992 defines corporate governance as ‘the system by which companies are directed and controlled. So it can be said that Corporate Governance is a system by which business corporations are regulated and controlled. It is a government body that specifies the rights and responsibilities among different participants incorporation, such as shareholder board of directors, managers, and other stakeholders. Corporate Governance has some kind of discipline and accountability which is very necessary to stop unethical or illegal practices of business corporations.

Why We Need Corporate Governance?

In this era of globalization, the market is open for everyone. There are many national or multinational companies in the world that dominate the entire corporate world. These big companies have many economic sources to increase their business.

But many times we hear that big companies like Enron, the House Ton, WorldCom, and Telecom behemoths involve unethical and illegal operations.

Many news paper’s headlines show us the corporate world is involving in corruption and other illegal activities. It is very harmful to us as well as society.

To stop those unethical, illegal, and corrupted activities we need Corporate Governance. Today corporate governance is a buzzword of the corporate boardroom across the world.

Corporate Governance is a set of rules or code of conduct for the corporate sector or corporate governance. By corporate governance, the government can regulate corporate companies. Every company has to follow those rules or codes of conduct to start their business in a particular state or region.

Principles of Corporate Governance

There are some important principles of corporate governance.

This is-

1. Corporate governance assures an adequate and appropriate system of controls within a company.
2. It restricts individuals to be much more powerful in the corporation.
3. Corporate governance ensures the better relationship between companies’ management and its shareholders, employee and other stakeholders.
4. It assures transparency and accountability in the corporate world

Major Components of Corporate Governance

There are many key components of corporate governance. Here I have mention some major components by which any company maintaining their direction and promoting good will of that company.

Accountability

Accountability is the heart of the corporate governance. It is the duty of any officials for their answerability to such questions like how their authority works and their achievement, where the resources went etc. Corporation should accountable to their stakeholders.

Effective Leadership

Effective Leadership is one of the major components of corporate governance. Corporate governance needs a leader who provides proper direction to the company and making responsive design to look forward. Leader should be effective by their monitoring performance.

Transparency

Transparency means nothing to hide. In corporate governance the financial reporting, remuneration of employees, process of budgeting etc, should be transparent. This is a critical component of corporate governance by which government can check the actions of corporations.

Administrative Ethics

Ethics provide accountability between corporation and its stakeholders. It is one of the major components in which corporate governance presupposes an ethical code of conduct on the part of all stakeholders of the company.

Security

Cyber crime is a serious issue for corporation in this digital era. It is needed to be a secured platform where everyone’s data will be safe who are associated to that particular company.

Importance of Corporate Governance

In this huge market’s competition corporate governance is very needed for assuring the transparency and accountability of business corporations.  It is an instrument by which we can avoid a massive economic disaster before they occur. Because unethical or illegal activities of corporations can harm our entire economic system and it can decrease our standard of life. It also can prevent corporate scandals, fraud, civil and criminal activities of the companies. A corporation without governance is like a body without soul. So it is very necessary to established a good corporate governance for the country’s sustainable development.

References

1. CHAKRABARTY, BIDYUT KANDPAL PRAKASH CHAND. PUBLIC ADMINISTRATION IN A GLOBALIZING WORLD: Theories and Practices. SAGE INDIA, 2012.