Breaking Down the Role of Corporate Governance

Corporate governance definition:

Corporate governance management is a set of rules, practices and regulations by which a firm is controlled. It provides the framework for the company to attain its objectives. It often involves balancing the interests of a company's many stakeholders, management, customers, suppliers, financiers, government and the community. It is the art of controlling and directing the organisation by balancing the needs of stockholders.

Corporate governance and Board of directors:

The shareholders of the company appoint the board of directors. They act as a representative on behalf of the stockholders. Corporate governance management and the board of directors need to work in sync to uphold the organisation’s reputation.

The board has tasks to make decisions related to the organisation which include setting the dividend policy, financial optimisation, the appointment of corporate officer and many more. The objective of the board of directors is to oversee the management of the company and determine that no scams are involved where the company loses large stockholder groups.

Good and Bad Corporate governance:

Good corporate governance management creates a transparent set of rules in which shareholders, directors and officers have aligned incentives. This management believes in the notion of economic efficiency that must be followed while directing and managing the organisation. Following are a few elements that constitute in good corporate governance:

1. Effective risk management: The corporate management often plans strategies with smart policies to deal with unexpected

2. Discipline: Unless the management doesn’t mobilise the policies into the workforce, the strategy implementation can fail. Hence, they need to be disciplined and committed towards the cause of good corporate governance management, to bring out useful

3. Transparency: Sometimes managers filter out the available information and provide insufficient information to the However, corporate transparency helps unify an organisation. When employees believe in the policies suggested by the board, they will have a better understanding of the organisation and work with better resolutions.

Bad corporate governance management cripples the business operations. It will cast doubt on a company's reliability, integrity or obligation to shareholders which will affect company’s financial health. In the past, poor governance standards in India have lead to a series of corruption scandals. The lack of stringent norms adversely affects the stock markets, limiting the liquidity of these markets and poor returns for investors.

The board of directors act as a link between the management and the stockholders. However, the political interests of the board of directors can act as a conflict for company’s growth. It is possible that the administration is involved with political campaign strategies under the disguise of the company profile. There are instances of corporates engaging in political funding. Nevertheless, political engagement is a collective decision undertaken by the company’s management and the board of directors. It is the organisation’s policy to disclose the campaign spending or not.  

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Created on Jul 17th 2018 03:48. Viewed 500 times.

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