With the staggering increase in corporate frauds and market failures, there is an augmented emphasis to focus on good corporate governance to establish transparency and compliance. ICSA – The Governance Institute explicates corporate governance as – “the way in which companies are governed and to what purpose.” Corporate Governance, simply put, is the way a company governs itself.
The fundamental role of corporate governance is to balance the interest of all the company’s stakeholders. A company with good governance imbibes a well-defined corporate governance structure. This essentially means adopting a specific set of policies, practices, and principles that can help both – guide as well as control the company, to mitigate certain risks. An effective corporate governance framework encompasses every aspect of the company’s management to provide working guidelines for achieving overall business objectives – Be its succession planning, share allocation, fund utilisation practices, policies for the board of directors, performance measurement, conflict of interest, corporate disclosures to partners and investors or even dividend distribution.
While it is often linked with publically listed companies, sound governance can help all kinds of organisations irrespective of their type or size.
Here are some of the benefits of corporate governance for companies.
1. A self-governing tool
With exhaustive policies and processes in place, the governance tool can help the management, detect growth opportunities, or bridge gaps by improving efficiency.
Good governance relies on the process, instead of the individuals. A company with sound governance policies is more likely to identify and mend issues beforehand, avoiding accidental discoveries of process gaps and corporate disasters. A robust governance system can handle contingencies, enabling organisations to take pre-emptive measures instead of reactionary ones and protect their reputation to safeguard their future.
3. Establishes reliability
By providing accurate information to all stakeholders on a regular basis, it establishes transparency within an organisation. This further facilitates strong investor relations and boosts creditor confidence to stay invested for long-term mutual success.
4. Mitigates fraud and legal risks
Companies committed to corporate governance put equal emphasis on adoption as well as implementation. Compliance with comprehensive corporate governance policies increases transparency and accountability across management levels, enhancing the corporate image and integrity. It minimizes the opportunities for fraud and corruption, in-turn protecting against legal risks, criminal investigations, and scandals.
5. Access to cheaper capital
Investor’s confidence is the result of company performance as well as its image. A stable and reliable organisation is considered a good investment bet. Strong corporate governance invokes a certain trust among investors which can help the organisation raise additional capital from the market at a much lower rate.
Good governance practices can benefit companies in many ways. A key requirement for good governance is for the management to identify and voluntarily adopt the governance processes, which are in the best interest of their company. The effective implementation of good governance can translate into greater investment and access to cheaper funds, in-turn enabling companies to thrive and prosper.