Corporate Governance and its Importance
Corporate governance can be described as how a corporation decides the policy itself. It can further be explained how the given company can be governed similarly to a sovereign state whereby it comes up with its laws and various policies to the number of employees from the very highest level to the lowest. Corporate governance is expected to adjust the company’s accountability and, in most cases, avoid and control tremendous disasters even before their occurrence. The best corporate governance should be like the internal affairs unit of a police department, whereby it can easily get rid of problems with very high hostility. The importance of corporate governance can be compared to its primary business plan. According to Business Roundtable, this kind of system works best since they have been considered to offer companies not only regulations that help in the establishment of the least requirements and a set of laws but also flexible abilities to put into action practices that have previously been customized to help satisfy the needs of a given company.
If a company has a chairman of the Board of Directors instead of a Chief Executive Officer, this company is considered an independent company. The board of directors helps develop the best suitable strategies for the company, making it an independent body. The BOD is obligated to oversee the risk management of the particular company and its compliance programs. The compensation committee is an independent element because, from its adviser, it has the authority to provide independent advice according to the law and the stock market rule. The presence of the Advisory Shareholder’s vote on the executive’s compensation is considered an indicator of independence. This is because the shareholders have someone on the inside, someone they choose to represent and update them on matters going on with the projects they invested in.
The element of accountability is a strength of the company, as we can see on the table that the requirement of directors to own up to the stock in the corporation is highlighted as a strength. When someone is accountable for the shareholder’s money and resources, they will have a lot of trust in the company, which will build the company and help its growth. When a company has a stable audit committee, this team will help calculate all the funds that come in and those that leave, ensuring that every single cent is accounted for. This is considered one of the major strengths of Corporate Governance.
The ability of a company’s director to compensate its shareholders with stock and money is a major strength and backbone of the company. This increases the investor’s need to put their money with the company as they are guaranteed their money in cases where things do not go as expected. This also helps the company work harder and do its best to avoid giving back shareholders their money, and it keeps them on the toss. The financial experts in Corporate Governance are an important element of the company. These experts make sure the finances of a company are handled well and appropriately, whereby no mishandling of properties and finances goes unpunished. This is considered a strength because the shareholders and investors love putting their money and funds in places where they can feel and see the impacts of it.
The Audit Committee Ratio is considered a strength because it helps determine the total number of people in an Audit Committee. Therefore it helps to identify how efficient their work can be. The board’s audit committee is responsible for retaining and managing the company’s relationship with other auditors. The bigger the number of Audit Committee members, the more energy will be put into building relationships with outside companies.