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What is corporate governance? 6 important global necessities

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Corporate governance is a system by which companies are directed and controlled? It influences how objectives are set and achieved, how risk is monitored and assessed and how performance is increased. It consists of mechanisms such as the board of directors and audit committees that exist to provide some assurance to the owners/ shareholders that the management of a company is accountable for their actions and to reduce agency costs in terms of their management.  

The common features of corporate governance definition are the focus on the role and function of the board of directors as being responsible for ensuring the company is accountable for its decision and its performance. Corporate governance is the set of relationship between management, its board, its shareholders and other stakeholders. It determines the direction and performance of the company. In sum, it is a set of principles that ensure corporate governance direction, responsibility, and accountability and which affect all those who manage the corporation.

Since the corporate failures or collapse of (Enron, OneTel, World Com, HIH) there has been much attention paid to corporate governance

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Why is corporate governance important?

The corporate collapse of OneTel, HIH, Enron, and World Com, has intensified the attention of investing public on the issue of corporate governance.

Global Necessity-

  • Growth of public investment in a public company with many small shareholders investing in companies

  • Increased role and importance of companies to the national economies

  • Increase in competition for access to the capital market due to the globalization of market

  • Corporate governance strength helps to determine the cost of capital in a global capital market

  • Companies are equipped to compete globally and maintain and promote investors’ confidence both in the nation and overseas

  • Without the trust of investors, the firm cannot obtain new capital and grow

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These factors reflect a higher expectation by the investing community for companies to establish structures and systems and procedures to ensure effective management and appropriate standards of corporate behaviour The high-interest evidence the number of the organization that have set corporate governance principles. Some of these organizations include OECD, Unite kingdom Hampel Report on CG, the commonwealth Association of CG, the Australasian Treasury and the Australian Institute of company directors.

Interesting: Organizational mission, vision, purposes, and values

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