| By :
Joe Maldonado
Copyright (c) 2012 Joe Maldonado The philosophy of corporate governance is very broad. It is a actually a set of processes, principles and systems, it is about how a company is directed, it is about how the boards manage how the company is run by the executives and it is also about accountability of the board members to the company and the shareholders. Corporate governance directly impacts the attitude of the company as well as its responsibility and accountability towards employees, stakeholders, customers and shareholders alike. The superior the corporate governance, the better it is because it can help to strengthen the efficiency and integrity of the financial market. In case the corporate governance is not adequate, it will undermine the potential of the company and can also lead to fraud. To ensure and maximize transparency in the corporate world, the principles of corporate governance actually focus on companies which are traded publicly so that the regulatory, institutional and legal framework of the government related to corporate governance can be improved. In addition to these, the principles also provide guidance as well as suggestions for entities like stock exchange, corporations, and investors etc. which play important role in the development of corporate governance. Studies based on several economy types have revealed that there is no unique corporate governance framework which is suitable for every market in the world because rules and regulations significantly vary from country to county and hence, principles which are recognized internationally are not compulsory. They can be only looked upon as recommendations which can be amended depending on the market conditions. On one hand when corporate regulations can lead to improvement of governance, on the other hand the major responsibility for any superior governance actually lies within a company and not outside the company. For instance, balance sheet is an outcome of strategic as well as structural decisions as well as organization wide activities which can include stock options, risk management, composition of board of directors as well as decentralization of the process of decision making. Crafting corporate governance policies and introducing them into practice is really important but more important and perhaps of paramount importance is the introduction and encouragement of right culture. This must be set as one of the most important agenda but it has to be kept in mind that it must be done in a way where the board members can actually participate at ease because not everyone in the board will be a risk management or financial expert! However, the task which is primary for board members is to first understand and then approve the company's appetite for risk at any of its given stage of evolution and at the same time, they must also approve the processes which can monitor risk. Conservatism and innovation as well as growth and governance have inverse relationship as well. Considering those inverse relationships, corporate governance can also impede growth. For instance, if the corporate governance policies are very strict, mergers and acquisitions can be negatively affected because of lengthening of the procedures of due-diligence. In turn, the prompt decision making ability of the leadership will be compromised. So fundamentally, the corporate governance policies of any organization must be good enough to positively impact growth instead of hindering the process. This is why good corporate governance is needed.
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