What is corporate governance?

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Are you curious about the meaning of the term “corporate governance” in business? Find all its official definitions below, as well as why it is important and what actions can you take to create an effective corporate governance strategy.

Definitions of Corporate Governance in Business

Simple Definition of Corporate Governance in Business

Corporate governance in the business context refers to the systems of rules, practices, and processes by which companies are governed. In this way, the corporate governance model followed by a specific company is the distribution of rights and responsibilities by all participants in the organization.

Governance ensures everyone in an organization follows appropriate and transparent decision-making processes and that the interests of all stakeholders (shareholders, managers, employees, suppliers, customers, among others) are protected.

Corporate Governance deals with the way the investors make sure they get a fair return on their investment. In Corporate Governance, there is a clear distinction between the role of the owners of a company (the shareholders) and the managers (the executive board of directors) when it comes to making effective strategic decisions.

In today’s market-oriented economy and with the effects of globalization, the importance of corporate governance is growing. This is due to the fact of governance being an important way of ensuring transparency that makes sure the interests of all shareholders (big or small) are safeguarded.

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What Is The Purpose Of Corporate Governance ? What Are Its Benefits?

9 Positive Impacts of Corporate Governance in Companies

A good corporate governance system:

  • Ensures that the management of a company considers the best interests of everyone;
  • Helps companies deliver long-term corporate success and economic growth;
  • Maintains the confidence of investors and as consequence companies raise capital efficiently and effectively;
  • Has a positive impact on the price of shares as it improves the trust in the market;
  • Improves control over management and information systems (such as security or risk management)
  • Gives guidance to the owners and managers about what are the goals strategy of the company;
  • Minimizes wastages, corruption, risks, and mismanagement;
  • Helps to create a strong brand reputation;
  • Most importantly – it makes companies more resilient.