Mechanisms and Controls of the Corporate Governance

Corporate Governance refers to a collection of internal controls and procedures that serve as the foundation for a business’ operations and interactions with a variety of stakeholders, including consumers, management, employees and trade associations.

Control over corporate governance on the inside:

• Internal company management controls keep track of operations and take remedial action to help the company accomplish its objectives. Examples include:

• • The board of directors has the right to recruit, terminate, and compensate senior executives, as well as preserve investment capital. Problems can be detected, discussed, and prevented through regular board meetings.
  • Internal Control Systems and Internal Auditors: Internal control systems are policies used by a company’s board of directors, audit committee, management, and other employees to provide sound assurance of the company’s goals in terms of accurate financial reporting, efficiency, and compliance with laws and regulations.
  • Balance of Power: The most basic balance of power is one in which the President and the Treasurer are not the same person.
  • Salary: Work-based income is linked to a specific portion of one’s income and performance.
  • Monitoring by Big Shareholders and/ or Banking and Other Major Lenders: Because of their large position in the company, these stakeholders have incentives to keep an eye on leaders, including the correct degree of control and power.

Control over corporate governance from the outside:

External stakeholders’ authority over the organisation’s operations is included in corporate governance controls. Examples include:

• Competition
• Credit agreements
• Auditing and evaluation of performance information (especially financial statements)
• Government regulations
• Labour market management
• Media pressure
• Takeovers
• Law firms

In the viewpoint of the firm’s shareholders, the corporation is stronger if  the level of corporate governance is high.