What does Governance mean?
A company’s direction and control are governed by a set of rules, procedures, and processes known as ‘corporate governance. Corporate governance is balancing the interests of a company’s various stakeholders, including shareholders, top management executives, consumers, suppliers, financiers, the government, and the general public.
The four P's of corporate governance are:
- People
- Process
- Performance
- Purpose
The basic principles of corporate governance are:
- Accountability
- Transparency
- Fairness
- Responsibility
Why is good governance important?
The fundamental reasons why organizations should adopt good governance practices include:
Types of bad governance practices include:
- Companies that do not collaborate with auditors adequately or do not select auditors on a scale that is appropriate, resulting in the disclosure of false or noncompliant financial documents
- Inadequate executive compensation packages that do not provide the best incentive for corporate officers
- Boards that are poorly formed, making it harder for shareholders to remove inefficient incumbents.
To summarize, governance refers to the procedures for directing, controlling, and holding organizations accountable. It encompasses an organization’s authority, accountability, leadership, direction, and control. The application of strong governance concepts and practices throughout an organization can inspire passion and lead to greatness, which is why governance is so crucial.
