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Implement Corporate Governance
Introducing Corporate Governance
Corporate Governance may be defined as a set of systems, processes and principles, the sole of purpose of which is to create value for the stakeholders of the business like owners, creditors, workers, government etc. Its implementation will ensure that an organization is governed in the best interest of all its stakeholders. It is the system by which corporate fairness, transparency and accountability is introduced in the organization. It ensures:
- Protection of shareholder and other stakeholders interests;
- Transparency in all business process and dealing of the company
- Adequate disclosures and effective decision making to achieve corporate objectives;
- Statutory and legal compliances in true spirit;
- Commitment to values and ethical conduct of business.
Corporate Governance is the recognition by the management of the fact, that the shareholders are the absolute owners of the business and that there is to act as their trustee in true sense. It deals with conducting the affairs of a company such that there is fairness to all stakeholders and that its actions benefit the greatest number of stakeholders. In this regard, the management needs to prevent asymmetry of benefits between various sections of shareholders, especially between the owner-managers and the rest of the shareholders.
Benefits of implementing Corporate Governance
In the recent times, the concept of corporate governance has been attracting attention of businesses world over. It has been finding wide acceptance for its relevance and importance to the industry and economy. It contributes not only to the efficiency of a business enterprise, but also, to the growth and progress of a country's economy. Progressively, firms have voluntarily put in place systems of good corporate governance for the following reasons:
- Implementation of Good governance system, demonstrates adoption of good corporate governance practices by the business which builds confidence amongst the existing and prospective stakeholders. Investors are willing to pay higher prices to the businesses demonstrating strict adherence to internally accepted norms of corporate governance.
- A business entity is a made up of various stakeholders, like customers, employees, investors, vendor partners, government and society. Its growth requires the cooperation of all the stakeholders. Hence it is necessary for the entity to be fair and transparent to all its stakeholders in all its transactions by adhering to the best corporate governance practices.
- Several studies have indicated that markets and investors take notice of well managed companies and respond positively to them. Such companies have a system of good corporate governance in place, which allows sufficient freedom to the board and management to take decisions towards the progress of their companies and to innovate, while remaining within the framework of effective accountability.
- In today's globalised world, business need to access global pools of capital as well as attract and retain the best human capital from various parts of the world. Under such a scenario, unless a corporation embraces and demonstrates ethical conduct, it will not be able to succeed.
- Good Corporate Governance standards add considerable value to the operational performance of a company by:
- improving strategic thinking at the top through induction of independent directors who bring in experience and new ideas;
- rationalizing the management and constant monitoring of risk that a firm faces globally;
- limiting the liability of top management and directors by carefully articulating the decision making process;
- assuring the integrity of financial reports, etc. It also has a long term reputational effects among key stakeholders, both internally and externally.
- Effective governance reduces perceived risks, consequently reduces cost of capital and enables board of directors to take quick and better decisions which ultimately improves bottom line of the corporate.
- Adoption of good corporate governance practices provides stability and growth to the enterprise.
Effectiveness of corporate governance system cannot merely be legislated by law but it rather depends upon the attitude of the management. Only when the management believes in the effectiveness of Corporate Governance and intends to comply it in letter and spirit, only than the organization and its stakeholders will be benefitted by it. Moreover since the organization works in dynamic environment , therefore it is necessary to continuously evolve the system of corporate governance.
Source: www.business.gov.in
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