MEANING
Corporate Governance is a continuous process of applying the best management practices, ensuring the law is followed the way intended, and adhering to ethical standards by a firm for effective management, meeting stakeholder responsibilities, and complying with corporate social responsibilities.
It contains policies and rules to maintain a strong relationship between the owners of the company (shareholders), the Board of Directors, management, and various stakeholders like employees, customers, Government, suppliers, and the general public. It applies to all kinds of organizations-profit or not-for-profit.
OBJECTIVES AND IMPORTANCE OF CORPORATE GOVERNANCE
The objectives of corporate governance are:
1. Accountability: Accountability means to be answerable and be obligated to take responsibility for one’s actions. By doing so, two things can be ensured-
That the management is accountable to the Board of Directors.
That the Board of Directors is accountable to the shareholders of the company.
This principle gives confidence to shareholders in the business of the company that in case of any unfavorable situation, the persons responsible will be held in charge.
2. Fairness: Fairness gives shareholders an opportunity to voice their grievances and address any issues relating to the violation of shareholder’s rights. This principle deals with the protection of shareholders’ rights, treating all shareholders equally without any personal favoritism, and granting redressal for any violations of rights.
3. Transparency: Providing clear information about a company’s policies and practices and the decisions that affect the rights of the shareholders represents transparency. This helps to build trust and a sense of togetherness between the top management and the stakeholders. It ensures accurate and full disclosure timely on material matters like financial condition, performance, ownership.
4.Independence: Independence means the ability to make decisions freely without being unduly influenced. Decisions should be made freely without having any personal interest in the company. It ensures the reduction in conflict of interest. Corporate governance suggests the appointment of independent directors and advisors so that decisions are taken responsibly without influence.
5. Social Responsibility: Apart from the 4 main principles, there is an additional principle of corporate governance. Company social responsibility obligates the company to be aware of social issues and take action to address them. In this way, the company creates a positive image in the industry. The first step towards Corporate Social Responsibility is to practice good Corporate Governance.
