The Organisation for Economic Co-operation and Development (OECD), aptly defines Corporate Governance, as “Procedures and processes according to which an organisation is directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among the different participants in the organisation – such as the board, managers, shareholders and other stakeholders – and lays down the rules and procedures for decision-making.”
Corporate Governance in recent times has become an essential part of the functioning of any business. An entity which incorporates Corporate Governance and strictly adheres to it gets an edge over any other entity which is devoid of corporate governance.
Corporate Governance is based on its four pillars–
- DISCLOSURE AND TRANSPARENCY
- RESPONSIBILITY AND ACCOUNTABILITY.
Corporate Governance is important for any business concern. The reason for this is that, it ensures that the business is fair in its operations and that the business is transparent in its functioning and follows proper disclosure methods. This also makes the companies responsible for their actions. When a company follows good corporate governance, it is able to hold the confidence of its stakeholders which boosts the chances of its success.
In a similar manner, if a company has weak corporate governance it can be inferred that it suffers from mismanagement, corruption and wastage of resources.
The nine essential components of Good Corporate Governance are-
Independence, Transparency, Integrity, Fairness, Accountability, Responsibility, Corporate Citizenship, Corporate Governance Culture and Commitment.
Good Corporate Governance practices can mark a step for probable future growth, diversification, and it would enhance the corporate’s ability to attract equity investors – both nationally and internationally. It would also reduce the cost of borrowing loans or taking credit for corporations. Also, adopting good Corporate Governance practices leads to a better system of internal control, thus leading to greater accountability and better profit margins.