Corporate governance is the combination of rules, processes or laws by which businesses are operated, regulated or controlled. The term encompasses the internal and external factors that affect the interests of a company’s stakeholders, including shareholders, customers, suppliers, government regulators and management. The board of directors is responsible for creating the framework for corporate governance that best aligns business conduct with objectives.

An example of good corporate governance is a well-defined and enforced structure that works for the benefit of everyone concerned by ensuring that the enterprise adheres to accepted ethical standards, best practices and formal laws. Alternatively, bad corporate governance is seen as poorly-structured, ambiguous and noncompliant, which could damage the image or financial health of a business.

Principles of corporate governance

While corporate governance structure may vary, most organizations incorporate the following key elements:

• All shareholders should be treated equally and fairly. Part of this is making sure shareholders are aware of their rights and how to exercise them.
• Legal, contractual and social obligations to non-shareholder stakeholders must be upheld. This includes always communicating pertinent information to employees, investors, vendors and members of the community.
• The board of directors must maintain a commitment to ensure accountability, fairness, diversity and transparency within corporate governance. Board members must also possess the adequate skills necessary to review management practices.
• Organizations should define a code of conduct for board members and executives, only appointing new individuals if they meet that standard.
• All corporate governance policies and procedures should be transparent or disclosed to relevant stakeholders.

Benefit of Corporate Governance

Increased Profitability

• Gaining technological leadership via Research and Development
• Increased productivity
• Selling More

Cost Reduction

• Lower cost of operations, via centralising support functions
• Reduced duplicate Job Titles
• Centralised Inventory Control
• Buy Less

• Buy Effectively

• Increased Collection rate

Personal Benefits

• Less Stress

• Improved Quality of Life

• Increased efficiency, i.e. Do Less – Achieve More
• Conflict Management –  One purpose of corporate governance is to implement a checks and balances system that minimises conflicts of interest. Conflicts typically arise when two involved parties have opposing opinions on the way the business should be conducted. Since a board of directors is typically a mix of internally and externally involved members, corporate governance is a non-biased way to approach conflict.Conflicts could occur when executives disagree with shareholders. For example, the shareholders will typically want to solely pursue interests that generate profit while the chief executive officer might want to invest in better employee engagement efforts. Another type of conflict could arise if multiple shareholders disagree with each other. It would be the role of corporate governance to define how these matters are settled.

Brand

• Increased Market Value

• Recognition

• Pride

• Legacy

• Sense of Reliability for Stakeholders

• Attractiveness for Investors & Lenders

Publicity

Efficient Control

• Centralized Effort

• Transparency

• Over gain and loss

• Minimize conflicts of interest.

• Improved Communication

Faster Business Processed

• Easy integration in the case of merging or acquisition with lesser time, efforts and costs

• Adapt to changes at a  faster rate and thus help the organisation to survive in  the ever-changing environment

Regulation of corporate governance

Corporate governance has received increased attention because of high-profile scandals involving abuse of corporate power or alleged criminal activity by corporate officers. Therefore, laws and regulations have been passed to address the components of corporate governance.