Corporate governance is a system of relations between company bodies, shareholders, and other interested parties. It is one of the key elements of the growth of the company, increasing the confidence of investors. Check its main principles in the article below.
Corporate Management as a Special Type of Management
One of the main factors affecting the successful operation of the company is the possibility of its access to investment resources. At the same time, the company cannot count on the trust of investors and the receipt of external funding if it does not take measures to introduce effective corporate governance, namely, proper protection of investors’ rights, reliable management and control mechanisms, openness, and transparency in its activities.
The long-term practice of corporate governance in countries with a market economy, which reflects both the international and national experience of corporations in the world, made it possible to create a so-called system of corporate governance standards, which is built on industry-specific principles inherent in the management of corporate entities, and also operate on the basis of joint capital.
Lack of proper oversight by the board of directors, inadequate protection of minority shareholders, and incentives for company management that encourage excessive risk-taking are just some of the problems of corporate governance weaknesses. The Corporate Governance aims to:
- determine the principles and approaches which will allow companies to increase their investment attractiveness in the eyes of long-term investors;
- to reflect in the form of the best performance standards on the approaches developed over the past years in the field of resolving corporate problems arising in the course of the life of joint-stock companies;
- provide recommendations on good practices for fair treatment of shareholders, taking into account the negative examples of violations of their rights that have taken place.
Which Are the Main Principles of Good Corporate Governance?
In leading foreign practice, corporate governance has long been regarded as an important independent institution for ensuring the functioning of an efficient market economy. After all, thanks to various models of corporate governance, not only do the processes of making managerial decisions at the level of large public corporations take place but also the investment process is implemented due to the attraction of funds from institutional investors and households for the development of certain types of economic activity.
Among the main principles of good corporate governance are:
- equal treatment of shareholders;
- compliance with the rights and interests of shareholders, established by the norms and requirements of the current legislation;
- effective interaction with the company’s employees in solving social issues and ensuring the necessary working conditions;
- recognition of the rights of interested persons provided for by law;
- compliance with ethical standards of business conduct;
- compliance with all norms of the current legislation and local regulations.
Adherence to established corporate principles aimed not only at forming a positive reputation of the company in the minds of its shareholders, employees, customers, counterparties, and other persons interested in the company’s activities but also at controlling and reduction of risks associated with insurance activities, maintenance, and growth financial indicators of the company, introduction of rules of effective management and proper control, taking into account the interests of a wide range of interested parties, which ensure the work of the company, successful implementation of its statutory activities.