Corporate governance is to smoothly ensure effective management of a successful company. There are many ways to define corporate governance, corporate governance controls and directs a company, the board of directors are responsible for all the company's main decisions. The shareholders also play a major part in a company; they have the important job of appointing the directors and the auditors whilst ensuring that the most suitable people are appointed to make sure the company is running smoothly and prospers.
The board and its members play a vital role in the success of a company as they set the company's strategic aims and find the correct leadership to put them into practice. The board also supervises the management, as they require feedback on how the business is doing so they can relay that information back to the shareholders.
If you were asked what is corporate governance in a nutshell, you can explain it as a board of the company set the values and the aims for a company and watch as the operational management put them in place.
In the UK for companies that are listed, corporate governance is a part of the legal system. In the UK corporate governance code applies to accounting periods beginning on or after the 29th June 2010. The new listing regime introduced in April 2010 applies to companies that have a premium listing of equity shares whether or not they were incorporate in the UK or anywhere else in the world.
To ensure that the company is successful, the corporate governance needs to be strong and starts at hiring the correct board of directors. The directors are an integral part of the company so they need to be trained sufficiently to achieve long-term company goals. Good corporate governance also ensures that the stock market shares stay stable.
Why is it important?
Corporate governance is vital to a businesses' health. It is almost as important as a business plan. Once a businesses plan is in place, you should start looking into corporate governance. The reason why it is so important is because it protects the businesses image as well as its finances. If done properly, it will prevent the company from being part of scandals and fraud. Best case scenario, it makes the company look better to the public eye and makes it a safe bet and worthy of shareholder investment.
Essentially corporate governance is there to brush away all the dirt from the company and keep it clean. Corporate governance explained in the easiest way would be, it is in play to keep a company out of trouble. The more bad publicity a company get, the more chances of them failing. When a company get bad publicity it tends to bring down share prices and shareholders decide to make a swift exit leaving the company with no legs to stand on.
Find out more about Corporate Governance at our business management courses in London.