What is Corporate Governance? - Introduction - Meaning - The emerging need for Corporate Governance - Scope of Corporate Governance

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Introduction :

The concept of Corporate Governance, which emerged as a response to Corporate failures and widespread dissatisfaction with the way many corporate functions, has become one of the wide and deep discussions around the globe recently. Although it did not receive much attention until the dawn of the 1990’s it has become very popular within a short period

Meaning :

Corporate Governance is promoting corporate fairness, transparency, accountability integrity, and discusses of top management of a company. It is all about conducting the company’s affairs in such a manner as to ensure fairness of customers, employees, investors, creditors, vendors, government, and society at large. The main aim of Corporate Governance is to enhancement of long-term shareholder value which, at the same time, protecting the interests of other stakeholders.

Corporate Governance is concerned with managing to monitor and overseeing various corporate systems in such a manner that corporate reliability reputations are not put at stake. Its pillars are transparency, fairness in action, satisfying accountability, and responsibility towards the stakeholders.

The long term performance of a corporate is judged by a wide constituency of various stakeholders of the company as shown below

The emerging need for Corporate Governance :

Importantly C G is needed to

(1)   Create a corporate culture of transparency

(2)   Accountability

(3)   Fairness & opener’s

(4)   Responsibility

(5)   Disclosure of financial status

(6)   Compliance with all the moral & ethical values

(7)   Adhere to legal frameworks, and

(8)   Voluntarily adopted practices towards the society.

Besides the above, Corporate Governance is specifically needed for enhancing the effectiveness of the company in the following ways.

  •   To ensure corporate performance in terms of quality decision-making, long-term prosperity of the company
  •   Enhanced investor’s trust & confidence
  • Better access to the global market
  •   Combating corruption by preventing fraud and malpractices
  • Easy finance from institutions based on good governing practices
  • Enhancing enterprise valuation through improved operational practices
  • Reduced risk of corporate crisis & scandals
  • To gain accountability to the stakeholders of the company.

Scope of Corporate Governance :

Corporate Governance covers the following functional areas of management.

(1)   Preparation & presentation of the company’s financial statements

(2)   Internal controls and the independence of the company’s auditors

(3)   Review of compensation arrangements for C.E.O. and other senior officers

(4)   Power to hire & fire and compensate the top management

(5)   Covers the resources available to directors in carrying out their activities

(6)   Oversight and management of risks lying ahead of the company.