Benefits of Good Governance

Topics: Corporate governance, Corporation, Economics Pages: 5 (1672 words) Published: October 26, 2012
Corporate Governance refers to the way a corporation is governed. It is the technique by which companies are directed and managed. It means carrying the business as per the stakeholders’ desires. It is actually conducted by the board of Directors and the concerned committees for the company’s stakeholder’s benefit. It is all about balancing individual and societal goals, as well as, economic and social goals. Corporate Governance is the interaction between various participants (shareholders, board of directors, and company’s management) in shaping corporation’s performance and the way it is proceeding towards. The relationship between the owners and the managers in an organization must be healthy and there should be no conflict between the two. The owners must see that individual’s actual performance is according to the standard performance. These dimensions of corporate governance should not be overlooked. Corporate Governance deals with the manner the providers of finance guarantee themselves of getting a fair return on their investment. Corporate Governance clearly distinguishes between the owners and the managers. The managers are the deciding authority. In modern corporations, the functions/ tasks of owners and managers should be clearly defined, rather, harmonizing. Corporate Governance deals with determining ways to take effective strategic decisions. It gives ultimate authority and complete responsibility to the Board of Directors. In today’s market- oriented economy, the need for corporate governance arises. Also, efficiency as well as globalization is significant factors urging corporate governance. Corporate Governance is essential to develop added value to the stakeholders. Corporate Governance ensures transparency which ensures strong and balanced economic development. This also ensures that the interests of all shareholders (majority as well as minority shareholders) are safeguarded. It ensures that all shareholders fully exercise their rights and that the organization fully recognizes their rights. Corporate Governance has a broad scope. It includes both social and institutional aspects. Corporate Governance encourages a trustworthy, moral, as well as ethical environment. Benefits of Corporate Governance

1.Good corporate governance ensures corporate success and economic growth. 2.Strong corporate governance maintains investors’ confidence, as a result of which, company can raise capital efficiently and effectively. 3.It lowers the capital cost.

4.There is a positive impact on the share price.
5.It provides proper inducement to the owners as well as managers to achieve objectives that are in interests of the shareholders and the organization. 6.Good corporate governance also minimizes wastages, corruption, risks and mismanagement. 7.It helps in brand formation and development.

8.It ensures organization in managed in a manner that fits the best interests of all. The benefits are real and measurable. For one, good governance leads to higher market valuation. Buenaventura, a Peruvian company, managed to improve its corporate governance and the CEO estimates that these improvements resulted in an additional 20 per cent increase in market valuation. Better corporate governance also decreases the cost of capital and helps to attract and retain shareholders. An example has been vividly illustrated as; Credit Suisse raised its valuation of Brazil Telecom from “hold” to “outperform” because of governance improvements. Empirical evidence shows that Companies Circle members, due to their focus on improved corporate governance, produced substantially better operational and market results than other Latin American companies. Their profitability reflected by average ROE (Return on Equity) of 21.7 per cent from 2005 to 2007 was higher than other firms in the same period (16.7 per cent). Companies Circle members also pay more dividends, which helps attract additional investors, and have better access to credit at...
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