A company is a mixture of stakeholders such as customers, employees, investors, vendors and partners. A company should be transparent and fair to their stakeholders in all kinds of transactions. With the establishment of the economy towards globalization, our corporate world needs a good class governance system. The essential element of the corporate world is in the hands of promoting compliance with law in both spirit and letter. Thus, it can be said that fulfilling the expectations of the employees is the most important element of a company. Unless a company demonstrates a particular type of ethical conduct, it shall not be able to succeed. Corporate governance is one such way to achieve the goal. Corporate governance is a combination of commitment of the management to protect the rights and interests of the stakeholders and corporate ethics. It provides parameters of control, accountability and reporting system and the same helps in building a good relationship between the management and its customers (Aguilera, Judge and Terjesen 2018). Thus, it can be said that in today’s era of globalization corporate governance has played a very important role in ethical management of the company.
Corporate governance means a set of systems, processes and principles by which a company can be governed. As per Filatotchev and Stahl (2015), corporate governance contains set of rules that allows a business to be conducted in a certain manner with respect to their shareholders and the same generally makes as much as money as possible while following the rules of the society comprising of people and law. It is the duty of the Board of Directors of the company to make sure that there is good corporate governance. The same can include a set of relationships between the management of the company, its shareholders, its board and other stakeholders. A good corporate governance needs rules that govern the company with integrity. The board shall be held responsible to the owners of the company for achieving their objectives and for the conduct of business in relation to ethics and environment of the company (Shamir 2017).
Thus, corporate governance can be defined as the relationship between the shareholders and the company or broadly, it can be held as the relationship between the company and the society. In fact, it can be said that corporate governance is not a legal compliance it is a social compliance. However, there is still a difference between corporate social responsibility and corporate governance. There is a need to balance social and economic goals when managing the rule of corporate governance (Clarke 2016).
Moreover, it is also inclusive of balancing between the social and economic goals and working ethically. The traditional analysis of corporate governance has allowed focusing on the allocation of power and duty as part of the management, board of directors and stakeholders.
Why corporate governance?
Recently, there has been a considerable amount of concern regarding corporate governance in today’s era of globalisation. As per the rule of corporate governance, directors are obliged to act in the best interests of shareholders however, there are other instances where contradiction to such rule is raised. There have been cases of fraud, rise in payments and excessive debts and the same has been less transparent (Homanen and Liang 2018). Thus, corporate governance becomes very important for the following reasons:
- It contains the laws for creating a long term trust between the external providers and the companies of capital.
- It improves strategic thinking at the top by inducting independent contractors who get wealth of experience and different ideas.
- It rationalises the management and the system of monitoring the risk that a firm can face globally.
- It creates a limitation of the liability of the top management of the company by watching the decision making process
- It has long term effects on the reputation of the stakeholders both internally and externally
Good corporate governance is very important to the very existence of the company as it inspires and strengthens the confidence of the investor by ensuring that the commitment of the company to make profits in the future. Good corporate governance aims to seek the following objectives:
- A well-formed board of directors that is capable of taking independent decisions
- The board should remain balanced in all types of representation of proper number of non-executive who will take care of the well-being and the interests of the directors and other stakeholders
- That the board should have proper machinery to serve the concerns of the stakeholders
- The board keeps the shareholders informed of all details and development influencing the company.
- The board effectively monitors the working of the management team
- The Board remains in proper control of the affairs of the company at all times. The overall endeavor should be to take care of the Board so that they have maximized the wealth of the shareholder and the long-term value (Banerjee and Wahl 2016).
Corporate governance contains set of rules that allows a business to be conducted in a certain manner with respect to their shareholders and the same generally makes as much as money as possible while following the rules of the society comprising of people and law. It is the duty of the Board of Directors of the company to make sure that there is good corporate governance. The same can include a set of relationships between the management of the company, its shareholders, its board and other stakeholders. A good corporate governance needs rules that govern the company with integrity. The board shall be held responsible to the owners of the company for achieving their objectives and for the conduct of business in relation to ethics and environment of the company (Aguilera, Judge and Terjesen 2018)
Based on the discussion above, it can be said that corporate governance has become the latest buzzword for the present era of globalisation. Almost every country has institutionalized the rules of corporate governance and contained the best practices that shall lead to impose proper board structure. Corporate governance has become the need of the time and the success of the company depends a lot of rules of corporate governance.
Aguilera, R.V., Judge, W.Q. and Terjesen, S.A., 2018. Corporate governance deviance. Academy of Management Review, 43(1), pp.87-109.
Banerjee, S. and Wahl, M.F., 2016. Values in corporate governance: Ownership values. Innovative Journal of Business and Management, 5(01), pp.20-24.
Clarke, T., 2016. The continuing diversity of corporate governance: Theories of convergence and variety. Ephemera: Theory and Politics in Organization.
Filatotchev, I. and Stahl, G.K., 2015. Towards transnational CSR. Corporate social responsibility approaches and governance solutions for multinational corporations. Organizational Dynamics, 44(2), pp.121-129.
Homanen, M. and Liang, H., 2018. Universal Corporate Governance. European Corporate Governance Institute (ECGI)-Finance Working Paper, (585).
Shamir, R., 2017. Between self-regulation and the Alien Tort Claims Act: On the contested concept of corporate social responsibility. In Crime and Regulation (pp. 155-183). Routledge.