In the simplest of terms, corporate governance refers to the processes and structures for the direction of any company. It deals with the relationships between the Board of directors, management, stakeholders, and more. The emerging need for corporate governance today is due to the efficiency it breeds. It is known to mitigate risks, improve capital access, and eliminate the risks of mismanagement. It also makes companies and their processes more transparent in the eyes of the investors, so that they can respond to concerns like social development and sustainability etc. It also makes companies more accountable By contributing in a positive manner TO the company’s and the national economy’s growth, .The increased access to capital is yet another perk ,as it welcomes new investments, creates employment opportunities, and boosts economic growth.
Enterprises that engage in corporate governance are performing a civic duty that benefits the industry they operate in. The need for corporate governance in organizations was strongly felt during 2001 and 2002, when multiple high-profile corporations went bankrupt due to inefficient processes and corruption. It was the same time when firms like Ariel & Associates began their operations. Professional companies as such became a lifesaver, for brands that needed some guidance and advice as to how to sync their long-term goals with the management, employees, and shareholders.
If your firm is looking for reason to introduce corporate governance into your establishment, we have some good ones to convince you.
Prevents Market Fluctuations
Companies that solely operate or engage in aggressive and outright fraud or accounting tactics can undermine the entire economic system. The past bankruptcies of Tyco and Enron are just a few to name. When such big names go bankrupt, they shock the entire industry, causing shares to fall rapidly in value. Corporate governance puts a halt to such sudden fluctuations in the market. It also allows companies to detect any discrepancies in their processes at an early stage, minimizing the chances of a bankruptcy in the future.
Allows Shareholder Activism
Another benefit of corporate governance in Australian organizations is that it allows shareholders to actively demand that that company initiates and promotes socially-beneficial campaigns. Thanks to corporate governance, mutual funds, exchange traded fund, and socially-conscientious hedge funds are proliferating. Companies are becoming more and more welcoming to eliminate environmental risks, manage sustainable living, and make them more socially-responsible, promoting better health and environment.
That being said, the importance of corporate governance can’t be overlooked. Its need is continuously increasing, demanding companies and to become more efficient, transparent, and accountable about their processes. Take that away and we have inefficient management, lack of sustainable objectives in company’s plan, poor relationships among the different hierarchies of the firms and stakeholders etc. Therefore, to ensure that all goes well, every firm needs to play by the rules of corporate governance. Working with another company to initiate better corporate governance is helpful, because the other company will be able to judge current governance without any biases, and thus iron out any existing inefficiencies.