“Corporate governance is a mechanism, system and relations by which companies are directed, administered and control.”
Following the collapse of major companies such as Enron, worldcom and other big financial scandals during 1980s and 1990s in which accounting frauds were largely involved has shaken the confidence of investors. Corporate governance is of paramount importance to a company, it’s adoption mitigate the chances of financial frauds and big corporate scandals and can maintain investor’s confidence.
It is not a law
Corporate governance is not a law, but are set of principles which can direct companies in their affairs in a more transparent way. There is a misconception about corporate governance that it is some kind of law, instead it is a principle base approach to direct companies and not a law which is a rule base approach to regulate society or an entity.
Objective of Corporate Governance
The main objective of corporate governance is to maintain and enhance the confidence of the shareholders. It helps the decision making at the strategic level of the company, it segregate the duties and power and provide the base to main integrity. It explain to the board of directors (both executive and non-executive), management and shareholders their rights and duties and in particular, a role in running a company.
Content of Corporate Governance
- Risk Management
- Internal control
- Fairness
- Openness and transparency
- Independence
- Integrity
- Accountability
Why it is so important
Shareholders or investors has a level of confidence connected with the management of a company. They have entrusted management with their wealth, to maintain their confidence corporate governance plays a vital role. Nowadays investors consider the corporate governance as a big factor to investment decisions. It maintains investor’s confidence which can help to raise finance for further growth of a company. It can be said the good corporate governance can speed up the process of growth in a company.
Talal Hassan 