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Corporate Governance

REDEFINING CORPORATE GOVERNANCE – Why Is It Important for Companies?

“Success is not the art of making mistakes when nobody is looking, true success is the truthful expression of the performance when it is measured”.

Business is an ever-changing entity and going to change more and we owe this change to the flow of digital transformation. Well, who does not like the progress? Progress leads to better possibilities of success in terms of satisfying professional expectations. It feels really good when you compare your past performance with the present and you see progress. It is just the same in case of corporate or a country, which needs continuous success and development. There are many ways to achieve success, be it short cuts or the long ways where people work more ethically and sincerely.

Talking about corporate governance, it definitely belongs to the second category as it is the term given to the management practices followed by the organization. Corporate governance has an ethical, as well as legal dimension to it. The ethical side set the rules and once a broad consensus is achieved, on the other hand, the legal system ensures that the wrong-doers are punished. It can be the other way around as well like there is a righteous demand for fresh legislation after the scam is uncovered.

Corporate governance is basically a way of life and not only a set of rules to be followed in the organization. It has attracted a good deal of public interest because of its importance for the organizations as well as whole society. Corporate governance is still at an infant stage and has emerged in recent years. A key element for good corporate governance is the transparency inside the organization i.e. board of management, shareholders and auditors. It is equally important to maintain transparency because corporate governance has become a prerequisite for acquiring or retaining the financial resources and achieving sustainable growth. A good corporate governance structure always encourages the balanced relationship among the board of directors, shareholders and executive directors.

Why Corporate Governance is important for companies?

Corporate governance seems to be a tiresome job as it considers a wide variety of factors and regulations, constantly monitor and mitigate the risk factors, and manages the dynamic laws and regulations. The importance of corporate governance can only be realized when the custodians of the organization show willingness towards the self-governed system through a value system. We do not have to only show “Our Values” for the decoration of our organization premises but rather, we should live them.

The 21st century has moved forward form Management” to “Governance”. It is important that companies understand the foundation of a solid corporate governance program as the code of ethics are a central requirement of business practices of the company. Let’s understand the foundation elements of the corporate compliance program:

  • Aligning goals of the company with objectives of corporate governance

Corporate governance is a full-time job and needs to be sustained for the long term. Organizations are built with employees and their practices matters a lot. For the same reason, it is necessary to hire people who share the same ethical and moral code to shape the corporate culture of the company. The mutual alignment of employees and corporate governance can achieve the desired goals of the organization.

  • Reporting systems

The implementation of compliance strategy is necessary to manage fraud risk management and it also prevents the illicit activities within the organization. The well-structured reporting system allows the companies to monitor and detect fraudulent activities and this monitoring can be done with the eyes and ears of employees, if well-designed and applied. The employees can be trained to detect the potential risks with the reporting systems.

  • High Transparency

Transparency in the organization means timely, accurate and adequate disclosure of relevant information to all the stakeholders. Without transparency, it is not possible to progress towards corporate governance but most of the times, the information sharing is hindered under the excuse of privacy and confidentiality. The business heads should realize the importance of shareholder values and move towards the terms of disclosure of information within the corporate sector. It is undeniable that transparency and disclosure are the main pillars of corporate governance as they provide all the necessary information to stakeholders and allows them to understand whether their interests are taken care of.

  • Merit-based Management

The strong board of directors is required to lead the merit-based management and they have to e a non-partisan body with the sole motive of decision making through business prudence. However, corporate governance is broader than corporate management, an efficient administration of organization is essential for meeting the directed objectives. Corporate governance as a whole ensures that the long term objectives and plans, the proper management structure is at right place and also, ensures to maintain the integrity of the company along with fulfilling the responsibilities for various stakeholders.

 

Final Verdict

Corporate governance is not only the focus of the board of directors but everyone in the organization. The relationship between corporate governance and performance of the organization need to be recognized for compelling results in the business. I strongly believe that appropriate mechanisms of corporate governance are vital for the capitalistic economy. Moreover, the value-based governance system helps the organization to survive in the fiercely competitive industry.

Corporate Governance is not a luxury that only developed or wealthier countries can afford but for developing countries like India, it is equally important. We just need to take a step towards the implementation of Corporate Governance in the organizations. It will surely lead to the excellent growth of the corporate sectors, economy and the nation…!!