What is Corporate Governance?
Corporate governance is a structure which defines how a company will direct and controlled. There was a common belief that only big companies with many shareholders and complex architecture need to be concerned about corporate governance practices. But now in the time of 4th industrial revolution the term corporate governance has become more buzzing. Every types of companies whether it is big or small can be benefited from best corporate practices.
An Operational Perspective
“A system by which companies are directed and controlled”
Sir Adrian Cadbury (1992)
A Financial Economic Perspective
“is a mean to deal with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment”
- Shleifer and Vishny (1997)
A Relational & Stakeholder Perspective
“CG is a set of relationships between a company’s management, its board, its shareholders and other stakeholders. It also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.”
OECD, 2004
A Social Perspective
“Corporate Governance is concerned withholding the balance between economic and social goals and between individual and communal goals. The corporate governance framework is there to encourage the efficient ise of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interest of individuals, corporations and society.”
OECD, 2000
Pillars of corporate governance
There are four pillars for successful corporate governance. They are accountability, fairness, transparency and Independence.
Accountability: Accountability refers to answer-ability or liability. Shareholders are interested in who will responsible for which operation and liable for when something goes wrong. And even when everything goes smoothly as expected, knowing that someone will be held accountable for future mishaps increases shareholders’ confidence, which in turn increases their desire to invest more. This applies from the staff all the way up to top leadership embracing Risk management within defined formal appetite for risk. This also include fostering culture of compliance to create real and perceived believe that the entity is operation within internal and external boundaries
Fairness: Fairness means “treating all stakeholders equally and ensure their rights. The corporate governance framework should protect shareholder rights and ensure the equitable treatment of all stakeholders, including minority and foreign shareholders. Organization should respect the right of shareholder and encourage them to exercise their rights.
Transparency: Transparency refers to clarity i.e. everything going in the organization should be crystal clear, nothing to hide. Organization should provide timely accurate disclosure of information about all activities in the organization such as financial situation, social and environmental factors, performance etc. Transparency is a critical component of corporate governance because it ensures that all of entity’s actions can be checked at any given time by an outside observer. This makes its processes and transactions verifiable, so if a question does come up about a step, the company can provide a clear answer
Independence: Independence means the right of taking decision without any influence. Good corporate governance requires independence on the part of the top management of the corporation i.e. the Board of Directors must be strong non-partisan body; so that it can take all decisions based on business prudence. In progressing transparency it is important for non-direct actors to obtain confidence that that executive actors are leading the entity towards per-defined intent and not using it for self and obtain expert advisory on how applied approached can be improved.
In summary, combining all four pillars of Corporate Governance can be beneficial for the company. Though combining those pillars is not an easy task to do but companies’ now-a-days use governance software to makes things easy. It also makes the process more transparent by keeping clear and complete documentation at all times. Having a clear understanding of the principles and practices of good governance will enhance the performance of both the individual and the organization.
