Essentials/Characteristics of Corporate Governance6th May 2021 0 By indiafreenotes
Last updated on August 3rd, 2022 at 08:52 pm
Corporate governance is basically a set of rules, practices, and procedures that guides company oversight and control by its Board of Director and independent committees. It involves balancing the interests of a company’s stakeholders including management, employees, suppliers, customers, and the community with the need to deliver value to its shareholders/owners. Having a strong, active, governance program is absolutely critical to the ongoing financial health, growth, and success of an enterprise over time.
To be effective, your company’s leaders must take responsibility for their decisions and the performance of the organization as a whole. For example, the leaders of a company should design and adhere to a code of ethics that helps management promote each of the important characteristics of good corporate governance.
- Effective Risk Management
Even if your company implements smart policies, competitors might steal your customers, unexpected disasters might cripple your operations and economy fluctuations might erode the buying capabilities of your target market. You can’t avoid risk, so it’s vital to implement effective strategic risk management. For example, a company’s management might decide to diversify operations so the business can count on revenue from several different markets, rather than depend on just one.
- Discipline and Commitment
Corporate policies are only as effective as their implementation. A company’s management can spend years developing a strategy to push into new markets, but if it can’t mobilize its workforce to implement the strategy, the initiative will fail. Good corporate governance requires having the discipline and commitment to implement policies, resolutions and strategies.
- Clear Organizational Strategy
Good corporate governance starts with a clear strategy for the organization. For example, a furniture company’s management team might research the market to identify a profitable niche, create a product line to meet the needs of that target market and then advertise its wares with a marketing campaign that reaches those consumers directly. At each stage, knowing the overall strategy helps the company’s workforce stay focused on the organizational mission: meeting the needs of the consumers in that target market.
- Fairness to Employees and Customers
Fairness must always be a high priority for management. For example, managers must push their employees to be their best, but they should also recognize that a heavy workload can have negative long-term effects, such as low morale and high turnover. Companies also must be fair to their customers, both for ethical and public-relations reasons. Treating customers unfairly, whatever the short-term benefits, always hurts a company’s long-term prospects.
- Transparency and Information Sharing
Managers sometimes keep their own counsel, limiting the information that filters down to employees. But corporate transparency helps unify an organization: When employees understand management’s strategies and are allowed to monitor the company’s financial performance, they understand their roles within the company. Transparency is also important to the public, who tend not to trust secretive corporations.
- Corporate Social Responsibility
Social responsibility at the corporate level is increasingly a topic of concern. Consumers expect companies to be good community members, for example, by initiating recycling efforts and reducing waste and pollution. Good corporate governance identifies ways to improve company practices and also promotes social good by reinvesting in the local community.
- Regular Self-Evaluation
Mistakes will be made, no matter how well you manage your company. The key is to perform regular self-evaluations to identify and mitigate brewing problems. Employee and customer surveys, for example, can supply vital feedback about the effectiveness of your current policies. Hiring outside consultants to analyze your operations also can help identify ways to improve your company’s efficiency and performance.