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The Effect of Corporate Governance on Firm Performance

Nov 30, 2021 | 0 comments

Nov 30, 2021 | Essays | 0 comments

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*Corporate Governance and its Importance*
Corporate governance can be described as the particular way a corporation decides to policy itself. It can further be explained as a way the given company can be governed in a similar way as a sovereign state whereby, it comes up with its own laws and various policies to the number of employees they have 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, these kind of systems work 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.
*Independence Elements*
If a company has a chairman of Board of Directors instead of a Chief Executive Officer, this company is considered as an independent company. The board of directors helps come up with the best suitable strategies for the company and hence makes it an independent body. The BOD is obligated to oversee the risk managements of the particular company and its programs of compliance. Compensation committee is an independence element because it from its adviser it has the authority to provide independent advices according to the law and the stock market rule. The presence of the vote of Advisory Shareholder on the compensation of the executive is considered as an indicator of independence. This is because the shareholders have someone in the inside, someone they chose to represent and update them on matters going on with the projects they invested on.
*Strength Elements*
The element of accountability is strength to 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 strength. When there is someone accountable for the shareholders money and resources, they will have a lot of trust in the given company and hence this will build the company and help in its growth. When a company has a stable audit committee, this team will help in the calculation of all the funds that come in and those that leave and it ensures that every single cent is accounted for. This is considered as 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 to the company. This increases the investors need to put their money with the company as they are guaranteed their money in cases where things do not go the way they expected it to. This also helps the company to work harder and do their very best so that they can avoid giving back shareholders their money and it keeps them on toss. The financial experts in a Corporate Governance are an important element to the company. These experts take part in making sure the finances of a company are handled well and appropriately whereby no mishandling of properties and finances go unpunished. This is considered as 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 as strength because it helps in the determination of the total number of people in an Audit Committee and therefore it helps to identify how efficient their work can be. The board’s audit committee is responsible for the retention and the management of the company’s relationship with other auditors. The bigger the number of Audit Committee members, the more energy will be put in building the relationship with outside companies.