Corporate governance may seem like an intimidating term, but it essentially the principles and guidelines that an organization follows to ensure their continued success. These principles and guidelines create a system that controls the company so that it can meet or exceed its goals, while increasing overall value for both the organization and its shareholders.
Corporate Governance Principles
Corporate governance principles include a wide range of common factors. These principles include:
- Maintaining integrity in all business activities
- Transparency in all transactions
- Complying with all laws and regulations
- Ethical business management
- Accepting responsibility and accountability towards stakeholders
Maintaining clear differentiation between corporate and personal funds within the organization
These principles are the cornerstone of any successful business, and following them in all business practices will ensure the safety of your organization, as well as the interest of stakeholders.
Why Corporate Governance is Necessary
Sound corporate governance is proven to instill confidence in an organization. When the organization is ran in a way that promotes integrity, either from within, or with the assistance of independent directors, it shows that the company is dedicated to providing services and products in a manner that is acceptable for both the community, and its employees.
Organizations that show good corporate governance increase the likelihood of outside interest. Companies who are known to have solid governance practices generate more investor interest, as well as more reasonable sourcing capitals. If you want others to invest in your organization, they need to know that their money and personal interests are safe.
Lack of Corporate Governance
Organizations that lack positive corporate governance are often the same ones that end up in the news. Proper governance ensures that the organization is less likely to take part in scams, which affect the organization, shareholders, employees, and communities. Corporate governance provides a fail safe for organizations to ensure that the outward appearance is truly representative of the company’s image.
Generally, it is quite easy for consumers and shareholders to determine whether an organization has proper corporate governance. Those organizations without these principles and guidelines are often noted for their poor business practices, making it obvious to potential consumers that they should take their business elsewhere. The ability of potential consumers to easily research organizations prior to doing business with them helps to ensure that organizations that lack corporate governance are avoided, often based on word of mouth.