Corporate Governance – Its Role in Effective Business

Corporate Governance – Its Role in Effective Business

The Need for Corporate Governance:

Corporate governance exists as a framework for the workings of an organization. One of the main ways that corporate governance helps organizations is that it takes care of conflicts of interests within an organization and aligns everyone’s goals and interests to work for the betterment of the organization. It also clearly states the rights and responsibilities of those involved in the day to day workings of the organization.

Elements of Corporate Governance:

The major elements of effective corporate governance include:

  • Efficiency and effective governance: The organization cannot survive without having a solid structure and only then can it produce and meet the needs and demands of consumers and shareholders.
  • Transparency: Transparency, while it increases the company’s good name in the eyes of the public, is also useful in unifying a company. When employees of all levels and management understand clearly, the goals and strategies of upper management, they have a clearer idea of what the company is working towards.
  • Accountability: Corporate governance includes the aspect of being accountable to both the company as well as its stakeholders with proper documentation. It includes aspects such as cordial employee relations and public perception.
  • Inclusiveness, Participation and Corporate Citizenship: This aspect of corporate governance encompasses two key aspects: a company acting with social and environmental responsibility as well as making shareholders and employees from all backgrounds and genders feel more welcome and at home in the organization.
  • Legal Abidance: This element deals with the requirement of any organization to have well defined, fair legal systems and boundaries in place for an organization to conduct its business.
  • Successful risk management: All organizations deal with the aspect of risk. However, successful ones have effective risk management systems in place to handle any scenarios.

Benefits and Issues of Corporate Governance:

The benefits of effective governance include better public goodwill, cost reduction, stronger growth, and lesser compliance failure. Some commonly faced issues include aspects like ethical violations, short-term goals with no vision, lack of diversity, and poor standards.

When an organization does not adhere to certain terms, conditions, standards, or regulations, the management comes under the scanner under the form of governance compliance risk. In instances like these, companies may incur heavy penalties with a loss of face. Consultants or services help companies manage difficult periods and aid them in navigating through tough times.

While corporate governance is usually carried out by the upper echelons of management, there may be issues. In those cases, management may call experts known as corporate governance consultants and services who work closely with management to try and understand the workings of an organization.  These services and consultants also exist as part of highly specialized executive search firms or even independent third parties that exist specifically to cater to specific areas and offer specific services.

Legal, Governance, Risk Management, and Compliance, commonly called LGRC is a collective term for a set of processes and systems that are used by an organization’s corporate legal department to tackle specific business-related issues. A compliance department looks at specific areas where an organization is failing to meet requirements while a risk management specialist or department looks at strategies to mitigate the damage caused at areas that threaten the efficiency of the organization. Legal and governance departments look at the legal aspects of business processes while governance acts in tandem with all departments to oversee their doings.

Effective corporate governance acts like a control center that oversees all major processes from all logical perspectives. It also improves stakeholder relations and streamlines processes to the point where they become directly responsible for growth.

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