Corporate Governance for Startups and Established Companies
What is Corporate Governance?
Corporate governance is a set of rules, regulations, processes and practices implemented to control the activities of an entity.
It is implemented to safeguard the interest of stakeholders, promoters, management, customers, suppliers and the general community.
It is generally driven by the board of directors of the company. The basic principles of corporate governance are transparency, accountability, ethics and risk management.
Board in the company are generally consist of insider members of the company.
In large companies, independent directors are also appointed as a part of board to dilute the concentration of power and to use the experience and expertise of independent directors to safeguard the interest of both shareholders and management.
In today’s era, Investors focuses on certain areas of good corporate governance in a company before investing to safeguard their investment.
Why Corporate Governance is Needed in a Company?
- Corporate governance not only brings the transparence and fairness in a company, but also increases the trust of shareholders and community at large.
- It focuses on safeguarding the interest of all stakeholders of the company.
- It helps in improving internal controls throughout the company.
- It ensures compliance of all the accounting standards while making financial statements of the company.
- It ensures adequate disclosures related to all the events of the company.
- Good corporate governance in the companies is needed to attract good foreign investments.
- It is needed to attract the investors to raise additional capital in the market.
- It protects the investors by solving all their grievances related to the company and thus increasing investor satisfaction.
- It minimizes the risk of having frauds and irregularities in the company.
How to Implement Good Corporate Governance?
Setting Standard Processes
Its very important for a company to have a system in place to carry out its activities.
It is vital to have good system to implement the board’s agenda and strategies. Good communication between the board and management will further foster this.
Policies and Guidelines
The policies and guidelines should be compliant with the law and regulations. It should be easily available throughout the organization to ensure that every person understands about how things are supposed to be done.
Governance Process Documentation
It should be ensured that the governance related activities or processes done should be properly documented. It will help in review of the same for improvement and further provide evidence to stakeholders that the system is in place.
Effective Reporting to Board
Good quality reports should be prepared and send to the board to enable them in taking effective decisions and prepare strategies for short and long term growth.
Governance infrastructure should be such that it allows timely communication between the management and the board, frequency of reporting should be set clearly and control measure should be setup and followed based on outcome.
How Corporate Governance Saved Companies?
Big corporate scandals have been happened in the past in the companies like Satyam, Enron, worldcom.
It raised questions on the financial statements audited by the auditors and become a major issue in corporate governance for quite a few years.
Sarbanes Oxley act is then launched in 2002 in response to this scandals and scams. It was brought to restore confidence of investors by ensuring all the compliances.
Previously, the company’s management and control procedures has shown to be ineffective in detecting financial statement misstatements.
Later on, with better governance practices and SOX act, it led to improvements in internal controls, risk management, shareholder rights, accounting practices.
The companies have noted significant improvements in their market reputation based on feedbacks from shareholders, customers and other stakeholders.
Most of the companies following good corporate governance have also reported positive impact in profitability.
There has been substantial improvement in organizational efficiency also due to better management controls.
There is no “one size fits all” approach to the corporate governance and its design and implementation will depend on the functions, current practices, nature and size of the company.
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