Importance of Corporate Governance

The framework of corporate governance establishes the commercial ties that exist between a company’s shareholders, management groups, the board of directors, and all other important stakeholders.  Corporate governance is  crucial to create related regulations that are enforced and routinely followed.

• Changing Ownership Structure: In recent years, the ownership structure of businesses has altered substantially. In most major corporations, public financial institutions, mutual funds, and other related bodies are the single largest shareholders. As a result, they have effective management control over the company. They compel management to follow corporate governance procedures.
• The Importance of Social Commitment: Today, social responsibility is given greater importance. The Board of Directors must protect the rights of customers, employees, shareholders, suppliers, local communities, etc. This can only happen if they use comanagement. This is conceivable only if they follow corporate governance procedures.

• Scams On the Rise: There have been several scams, frauds, and corrupt activities in recent years. It can be found in stock exchanges, banks, financial organisations, businesses, and government agencies. Many businesses have turned to corporate governance to avoid frauds and money laundering.
• Indifference by Shareholders: Generally, shareholders no longer work for the management of their companies. They attend only the annual general meeting. Therefore, directors misuse their power to benefit themselves. As a result, corporate governance is required to protect all business interests.
• Globalisation: Today many large companies sell their goods in global markets. Therefore, they should attract foreign investors and foreign clients. And they have to follow the rules and regulations of other countries. All of this requires teamwork. It is nearly impossible to enter, survive, and thrive in the global market without corporate governance.
• Takeovers and Mergers: Today, there are many takeovers and mergers. Corporate governance is thus required to safeguard the interests of all parties involved in mergers and acquisitions.
• SEBI: To protect the interests of all stakeholders, it made corporate governance mandatory for certain corporations.

A company culture of integrity is fostered by strong and effective corporate governance, which promotes excellent performance and a long-term profitable enterprise.