Friday, January 20, 2012

Importance of Corporate Governance in an organization

In the recent times, there are many fraud cases, scams, corruption practices which came into the light. Scandals of Enron, 2G, Satyam, World cam are the example of the race. Inappropriate use of public money is happening every day worldwide in banks, financial institutions, stock market, various companies, government, where not!

But good part is -due to these scandals, organizations are adopting corporate governance as their practices.

Many people know the definition, but very few actually understand or implement the actual or good corporate governance. Good corporate governance is the balance of power among the directors, managers, employees and other stakeholders. Good corporate governance brings transparency and fairness into the system and discourages frauds. It protects the rights of all the stakeholders.

Corporate governance is a term that refers broadly to the rules, processes, or laws by which businesses are operated, regulated, and controlled. The term can refer to internal factors defined by the officers, stockholders or constitution of a corporation, as well as to external forces such as consumer groups, clients, and government regulations.

Many organizations spend good amount of money to create brand identity. Goodwill and reputation can be created through various approaches like marketing, CSR, strong relationship with stakeholders. Corporate Governance creates goodwill of the company over a period of time. It helps the organizations develop strong customer relationship, create brand reputation in the market and ultimately leads to brand loyalty, because these are imperative for the long term success of the organization.

Good corporate governance consists of a system of structuring, operating and controlling an organisation to achieve the followings:

- An organisational culture based on a foundation of sound business ethics
- Meeting the long-term strategic goal of the owner, while taking into account the expectations of all the key stakeholders, and in particular:
o think and care for the interests of employees, past, present and future
o work to maintain excellent relations with both customers and suppliers
o take account of the needs of the environment and the local community
- Maintaining proper compliance with all the applicable legal and regulatory requirements under which the company is carrying out its activities.

So, what good corporate governance can do?

- Support, measure and project integrity of the organization
- Encourage honest and transparent monitoring of each and every activity of the organization
- Assist training & development of the directors, empowering them in decision making
- Allow information sharing with all the stakeholders of the organization, be the employees, shareholders etc.
- Help attracting good talented workforce by creating good brand image
- Sharpen the human skills through regular training & development of the employees
- Investors are always attracted towards the transparent governance policies
- Protect and enhance the right of the individual investors and other market participants


So, I think that an organization must be structured in such a way that all the requirements are catered for and can be seen to be operating effectively by all the interest groups concerned.

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