Corporate Governance - Definition,
Scope and Benefits
What is Corporate Governance?
Corporate
Governance refers to the way a corporation is governed. It is the technique by
which companies are directed and managed. It means carrying the business as per
the stakeholders’ desires. It is actually conducted by the board of Directors
and the concerned committees for the company’s stakeholder’s benefit. It is all
about balancing individual and societal goals, as well as, economic and social
goals.
Corporate
Governance is the interaction between various participants (shareholders, 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. These dimensions of corporate governance
should not be overlooked.
Corporate
Governance deals with the manner the providers of finance guarantee themselves
of getting a fair return on their investment. Corporate Governance clearly
distinguishes between the owners and the managers. The managers are the
deciding authority. In modern corporations, the functions/ tasks of owners and
managers should be clearly defined, rather, harmonizing.
Corporate
Governance deals with determining ways to take effective strategic decisions.
It gives ultimate authority and complete responsibility to the Board of
Directors. In today’s market- oriented economy, the need for corporate
governance arises. Also, efficiency as well as globalization are significant
factors urging corporate governance. Corporate Governance is essential to
develop added value to the stakeholders.
Corporate
Governance ensures transparency which ensures strong and balanced economic
development. This also ensures that the interests of all shareholders (majority
as well as minority shareholders) are safeguarded. It ensures that all
shareholders fully exercise their rights and that the organization fully
recognizes their rights.
Corporate
Governance has a broad scope. It includes both social and institutional
aspects. Corporate Governance encourages a trustworthy, moral, as well as
ethical environment.
Benefits of Corporate Governance
- Good corporate governance ensures corporate success and economic growth.
- Strong corporate governance maintains investors’ confidence, as a result of which, company can raise capital efficiently and effectively.
- It lowers the capital cost.
- There is a positive impact on the share price.
- It provides 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.
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