Corporate governance term is the term which is often heard in business channels when market experts are talking about companies and their future. It refers to overall structure and practices which are followed in the company and it is decided by the top management and that is the reason why lot of emphasis is paid on corporate governance because a company having good corporate governance will command market premium when it comes to valuation of shares of the company. Given below are some of the features of corporate governance –
- A good corporate governance is characterized by how much amount of accountability along with responsibility is given to CEO or top management of the company, because if CEO is given responsibility without accountability then the actions of CEO are likely to be harmful for the future prospects of the company because in back of mind CEO knows that if he or she take any action or decision nobody can blame the CEO for results as he or she is not accountable.
- It should be systematic procedure or in simple words company should have clearly laid out policies and regulations for all employees and also regarding the work culture which should be followed from top to bottom of the organization.
- Transparency is another key feature of good corporate governance because an organization which is not transparent with its stakeholders, employees, government, creditors etc…, is looked upon as organization which is hiding its wrongdoing and therefore without transparency the whole idea of good corporate governance will fail.
- A good corporate governance structure will tie the hands of top management in the sense that they will not be able to do whatever they like rather their all actions will be under close scrutiny and therefore chances of fraud are less in those companies where corporate governance is followed rigorously.
- Corporate governance is no longer a luxury rather it is a need which the shareholders demand from company in which they invest, gone are the days when shareholder would buy shares and forget their investment and happy with dividend. New age investor’s check regularly what is happening in the company and corporate governance is one of the top variables along with earnings which affect the share price of the company and decision by the shareholder whether to buy or sell the stock.
As one can see from the above features that corporate governance is like a speed breaker which keeps high speed vehicle in check and therefore reduces the chances of accidents, in case of companies corporate governance will keep in fraudulent people in check and avoid the chances of companies committing fraud with shareholders.