Read this article to learn about the (i) Concepts of Corporate Governance, (ii) Objectives of Corporate Governance, (iii) Need of Corporate Governance, and (iv) Principles of Corporate Governance…
Concepts of Corporate Governance
When a company is established, selected individuals of the shareholders run the organizations. These individuals are the directors of the company and are normally the shareholders holding the majority of the company’s shares. They are mostly the promoters or initiators of the company.
These selected individuals select a chairperson from amongst them who chairs the meetings of the board of members.
The concept of corporate governance achieved wide popularity in the 1990s to develop the effectiveness of corporate businesses. The role of corporate governance is to develop the approaches to market conditions and as well as improve economic development.
Corporate governance is:
(i) used in companies to establish order between owners and top-level of managers,
(ii) relationship with our stakeholders used to control and determined the strategic direction and performance of organizations.
(iii) concerned with explaining ways to ensure that strategic decisions are made effectively.
Purpose / Objectives of Corporate Governance
The key objectives of corporate governance are as follows:
1. To accomplish corporate goals by making an investment in profitable outlets.
2. To make stronger our corporate functioning and dishearten mismanagement.
3. To arrange corporate goals with the goals of its stakeholders (shareholders, society, etc).
4. To identify the responsibility of the board of directors and superiors to ensure good corporate performance.
Need for Corporate Governance:
Corporate governance is needed for the following causes:
1. Global capital:
In this modern globalized world, global capital flows in markets which are well-structured with optimum standards of efficiency and transparency. Good or well corporate governance gains trust and credibility of the global market players.
2. Separation of ownership from management:
Any business or company is run by its managers. Corporate governance makes sure that managers work in the best interests of corporate or company’s owners like shareholders.
3. Banks and financial institutions:
Banks and financial institutions provide financial help to companies. They are very interested in the financial soundness of business companies which can be provided through good corporate governance.
4. Foreign investments:
Important foreign institutional investments are taking place in India. The shareholders expect companies to adopt globally accepted practices of corporate governance and well-developed capital markets.
Demanding international types of corporate governance and significant professionalism in the management of Indian companies substantiates the need for good corporate governance.
5. Investor protection:
Investors are enlightened and educated about their rights. They want their rights to be secured by companies in which they have invested money. Corporate governance is a very essential tool for protecting investors interest by improving the efficiency of business enterprise.
6. Globalization of economy:
Globalization of India with the whole world economy wants that Indian industries conform to the standards of international rules and regulations. Corporate governance provides a huge help in doing this.
7. Financial reporting:
Good corporate governance indicates transparent, sound, and credible financial accountability and reporting to investors and lenders so that funds can be easily raised from capital markets in an economy.
Principles of Corporate Governance
The key principles are as follows:
2. The way in which persons are nominated for positions on the board.
3. The omission of preparation of the entity’s financial statements.
4. The resources (physical, natural, etc) made available to directors in carrying out their tasks.
5. Management of risk.
6. Preview of the compensation arrangements for the CEO and other superior executives.
The corporate governance principles arrange the interest of peoples and their community goals, society, and corporations in the following ways:
Owner, the board of members, and chief executive of the corporation should fulfill their accountability to the customers, shareholders, society, workers, and the government. Since they have significant authority over the company’s resources, they should accept or invite accountability for all their actions and decisions.
Business corporations have to be transparent. Transparency means adequate, accurate, and timely disclosure of relevant information to the stakeholders. Disclosure and transparency inform the stakeholders that their interest is taken care of.
Good corporate governance includes accurate reporting to shareholders and their stakeholders, for example, a business corporation should publish quarterly(1/4), half-yearly(1/2), and yearly(1) performance and operating results in newspapers and our official website also.
For good or fair reasons, corporate governance seems to be a strong, independent, and non-participatory body where all decision-making actions are based on business.
So, this is the full explanation on the topic of Concepts, Objectives, Need, and Principles Corporate Governance…