Corporate governance is the complex set of protocols, policies and procedures used by different stakeholders to govern and to run a company. Generally, governance policies and rules to identify the allocation of resources and responsibilities among different participants in the company’s activities and ensure that these responsibilities are fulfilled in time. However corporate governance also involves monitoring, controlling and reporting of company developments.
The main functions of corporate governance are to provide protection and support to the directors, managers and other key personnel of the corporation. The ultimate objective of corporate governance is to ensure that the business is conducted in the way the investors and creditors expect and are protected from any adverse events or consequences. For this, the corporations develop a code of conduct for its members that they are expected to adhere to. These codes of conduct generally restrict the strength and frequency of meetings, the number of directors’ seats and the number of CEOs.
Besides, corporate governance also ensures that the interests of the various stakeholders are protected. This is done by the voluntary agreement by the members of the corporation as to how they would deal with certain issues. In addition, it requires the approval of the shareholders for major decisions. This means that it is a system in which the interests of all the stakeholders are considered and their rights are protected.
Besides, corporate governance requires that a CEO and members of the Board must be independent and not have any personal stake in any business decision. Independent Board members are required to act impartially and take decisions in the best interest of the company. Moreover, the number of independent directors on the boards and committees is dependent on the number of seats on the boards, the length of term of the directors and the size of the company.
A good corporate governance practice also ensures that the best interests of the investors are protected. This can be achieved by ensuring that the managers are held accountable. Managers are supposed to be neutral and should not be influenced by personal or professional incentives. This can only be attained if the Board of Directors has sufficient and functioning Boards. For instance, only a minority of directors need to be present during meetings. Also, there should be an adequate number of independent managers to make sure that corporate governance practices are effective.
Apart from this, corporate governance ensures that the interests of other stakeholders are protected. For example, the interests of the employees, suppliers, customers etc. must be considered. Good corporate governance also ensures that the interests of all the stakeholders are met in the best interest of the company. This way, the company ensures that it achieves all of its goals and missions.
Apart from that, corporate governance deals with the management of financial activities. This includes all of the different financial aspects of the company, including the day-to-day operations and key priorities of the management. This way, the shareholders will get a clear picture of how the company plans to run its business in the long-term. The ultimate aim is to protect the long-term interests of the investors. Therefore, all of the Board of Directors must be elected according to the rules of the Company.
Finally, good corporate governance ensures that there is an ongoing process of reconciliation of the assets and liabilities of the company. This is required because the assets and the liabilities of a business can easily change over time. This makes the books of accounts of the company very irregular and unbalanced. Therefore, to prevent the shareholders from being defrauded, all shareholders must have a right to bring matters to a vote. Without this right, the company can easily become corrupt and therefore, must have a well-functioning and transparent corporate governance system.