The Importance Of Corporate Governance In A Business

The Importance Of Corporate Governance In A Business

by Johnny S

A company is known for its structure. Duties and obligations should be clearly laid out so that each person within the company knows what they are supposed to do to achieve company goals and the rules. This is called corporate governance.

But more than just laying out the ground rules for a business, corporate governance promotes transparency and accountability. These values do not just apply to employees; because administrators, managers, and even the investors are subject to the rules and practices dictated by the company.

Corporate governance is extremely important for key members or decision makers of a company. This includes stakeholders, shareholders, and the board of directors. If you have a company, this is what will help you communicate with them and making them understand what their roles in the business are. In this article, we will explore further what corporate governance entails and the people involved in it.

Promotes transparency and accountability

Corporate governance’s focus is on transparency and accountability. Stakeholders and employees should know what the duties of each person are, who are the heads of each department, as well as which projects are being done so that there can be accountability. This also means that each department will have to disclose information that both shareholders and stakeholders should know as the prime movers and investors of the company. Access to this information ensures that everything is aligned with company best practices and that these decisions are expected to earn the company a significant return.

Laying out the roles and responsibilities of the board of directors

The company needs to be as strict with the role of the board of directors as they are their employees. The board is at the head of the company, and they are the decision-makers that move the company forward. Part of their responsibility is not just communicating what best practices should be executed by the company per department, but they should be active in assessing whether an employee needs more training to carry out the best practices. The level of commitment that they are asking from the employees should be the same, or even more, as the level of commitment that they are putting into managing the business.

Encouraging shareholders to get involved

Shareholders do not just have a stake in the company’s earnings, but they should also have a say on what is happening within the company and a little involvement in how it should be managed. Corporate governance ensures that shareholders know what decision rights they hold over the business, at the same time, list down the limits with which they exercise these. It will encourage them to voice out suggestions and reactions they may have as people who own company stocks.

All this boils down to is creating a company culture which promotes ethical working behavior. By having honest communication in all avenues of the company, with the board of directors working as role models of this behavior, you will be able to run a business that has a high level of integrity.

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