Importance

of

Corporate

Governance for a Company

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Table of Contents
1.

Introduction.......................................................................................................... 3

2.

Corporate Governance: Theoretical Aspects........................................................3

3.

Importance of Corporate Governance..................................................................4

3.1

Improved Capital Access................................................................................4

3.2

Performance improvement............................................................................5

3.3

Value added services..................................................................................... 5

3.4

Reduction of investment risk.........................................................................5

3.5

Reduction of reputation risk...........................................................................6

3.6

Development of capital markets....................................................................6

3.7

Comparative advantage................................................................................7

3.8

Global Leadership.......................................................................................... 7

3.9

Sustainability with Corporate governance.....................................................7

3.10 Relationship significance................................................................................8

3.11 Financial performance....................................................................................8
4.

Conclusion............................................................................................................ 9

References................................................................................................................ 10

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1. Introduction

Corporate governance can be considered as one of the systems, which play an important role in
driving and controlling the companies and have the significant role in establishing the required
level of relationships among the companies and interested groups towards making a strategic
decision over optimizing the performance. Overall returns and profitability of any company can
be enhanced with the disciplined application of corporate governance and also the other key
driving factors like relation with investors, customers, business partners, stakeholders,
employees, competitiveness, reputation and credibility can also be improved with proper
corporate governance strategies (Barlow, 2012). All the risks associated with day to day
operations within the company can be reduced a lot with the high implications of corporate
governance and it is also notices that, such companies are also proved to be show overall
performance and could able to attract many investors and financers as well. There are many other
aspects that can be considered while evaluating the importance of corporate governance over any
company and few important among them are as discussed below

2. Corporate Governance: Theoretical Aspects

Corporate Governance and its importance are been under research and development since
1980s, during where the American managers were neglected against the stakeholders interest
and thus noticed a fall in overall share value. Lot of research and theories were proposed with
respective to corporate governance and most of the contributions were from OECD
(Organization for Economic Co-operation and Development). Primary focus of OECD principles
is in public trading companies in terms of both financial and non-financial aspects considered to
achieve their goals and the role of corporate governance in this context (Danbolt, 2014). Thus
here, a regulatory framework for corporate governance was proposed while considering the key
aspects like legal, political, financial and institutional level strategies are given ample priority as
well. In general the implications, policies, arrangements and responsible institutions which
support the corporate governance will vary from a country to the other and it is noticed that,
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there is no specific or universal corporate governance framework developed over the key market
places.
Since few years, corporate governance has gained lot of importance in terms of research and
theory, and lot of team like project managers, stakeholders and minor shareholders will be
involved in this context. Proper distribution of rights and responsibilities can be done with
respective to the structure of corporate governance and in general the distribution can be among
them the key actors like board of directors, shareholders, managers and other stakeholders as
well and thus proper corporate decisions can also be made. Overall integrity and efficiency of the
company can also be improved with the role of corporate governance, where the financial
markets are analyzed in this context. Similarly, poor corporate governance will always hinder the
companys growth and leads to frauds and financial difficulties (Hayes, 2013). Also recent
research clearly indicates that lot of investors are interested in investing in companies which
follow good corporate governance policies rather than with poor corporate governance strategies.

3. Importance of Corporate Governance

Importance of corporate governance for a company can be evaluated at various aspects and some
key among them are as discussed below

3.1

Improved Capital Access

Equity with respective to companies global portfolio can be achieved with appropriate corporate
governance strategies over the emerging markets. In general the academics and policy makers
will focus on the key corporate governance strategies and evaluate their role in terms of
enhancing the overall access of the company to the wide spread market conditions. From the
empirical evidence it is clear that, companies with well-governed strategies can gain enhanced
market valuations and thus the overall capital flows can also be increased as well (Kumar, 2012).
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Over the developing countries it can be noticed that, the global and domestic level capital, equity
and debt can be well utilized in terms of public and private capital and security sources as well.

3.2

Performance improvement

Irrespective of the capital access requirements of any company, always good corporate
governance strategies will enable the IFC clients with better performance. Quality decision
making can also be done with ample corporate governance strategies and thus the improved
processes and structures will help the company to make effective and planning successions with
the role senior management. Both the short and long term goals, aims and objectives of the
company can be set and made come to true with the proper implication of corporate governance.
Independent of the financial sources and company type, proper evaluation and interpretation of
performance can be done with strategic implementation of corporate governance.

3.3

Value added services

In most of the cases, top priority of the companies is to implement the corporate governance,
where the level of strengths and opportunities are considered in this context. Individual client
benefits can be analyzed by the company with the proper implication of corporate governance
and thus the overall work can be improved with the ample contribution of governance strategies
as well. Promotion of sustainable value of private sector is done with the help of corporate
governance strategies and this trend is quite noticed across developing countries (Kirkpatrick,
2012).

3.4

Reduction of investment risk

Overall risks associated with the investments can be reduced a lot with the proper application of
corporate governance and thus excellent corporate governance driven companies are the first
choice for most of the investee companies. Key investment barriers include poor performance of
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the company due to lack of ample implication of corporate governance and thus working on
corporate governance has become a mandate conditions for most of the companies as well. Also
working with strategic corporate governance policies will enable the companies to work in high
risky investment environments, by which they can gain required level of competitive
governance. Thus to attract more investors, companies can depend on the respective corporate
governance principles, where the required level of market valuation can also be enhanced in this
context (Mundy, 2013). Favorable conditions will always improve the investments and also
reduce the associated risks for the companies with the proper adoption of corporate governance
strategies. Quality of the governance market can be evaluated with the level of communication
established with the high profile clients and thus most of the companies have worked in this
context.

3.5

Reduction of reputation risk

Companies with poor corporate governance are always prone to both the investment and
reputation risks as well, due to the level of potential involvement of client companies. Most of
the corporate scandals will evolve with the poor corporate governance strategies adopted and
would become more serious in few cases, when the equity investors and stakeholders are
involved and quite noticed over banks, insurance companies and other financial institutions.

3.6

Development of capital markets

Both the public and private capital markets can be developed with the improved corporate
governance contributions from various developed companies and markets as well. Instable
financial performance of the companies is mainly identified due to poor corporate governance
standards followed by the companies, where the required level of transparency and disclosure
will be missing in most of the cases. Best example is with the case of crony capitalism across
East Asian financial crisis during 1997, where lot of interrupts was noticed for decades with the
effect of imbalance in microeconomics and outstanding economic growth. Corruption was
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widely spread due to poor corporate governance contributions across the West Europe and
United States, which also lead to dramatic corporate failures (Du, 2013).

3.7

Comparative advantage

Importance of corporate governance can be evaluated from the root level while structuring the
comparative advantages of most of the companies. In general the comparative advantage of
companies can be improved in terms SWOT analysis with the ample involvement of Board
members, where the global principles can be tailored against the realities of developing countries
public and private sectors. Always good leadership with practical and structured corporate
governance strategies will allow many financial institutions like banks and insurance companies
to invest over the companies and this trend is quite noticed across most of the developing
countries (Shammari, 2014).

3.8

Global Leadership

Required level of technical assistance and regulatory market conditions can be evaluated with the
global policies associated with the corporate governance and this can be achieved by directly
working with the client companies. Most of the technical assisted projects over China, Middle
East and India are strictly driven by the corporate governance strategies, where the role of global
leadership is crucial in this context. More capital investments can be attracted with good
corporate governance policies, where the required level of international investors portfolio can
be embedded to the companys strategic decision making process with the ample role of global
leadership (Vasarhelyi, 2014).

3.9

Sustainability with Corporate governance

Corporate governance can be considered as one of the key pillars of sustainable company
operations against the complex environmental and social conditions. Always the likelihood of
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enterprise to claim the legitimate benefits can be enhanced with the level of corporate
governance strategies, where the stakeholders can fulfill their environmental and social
responsibilities in this context. Companies those adopt and implement good corporate
governance will always be proved as accountable, sustainable, transparent and reliable in terms
of maintaining good relationship with stakeholders, customers, employees, creditors and rest of
the wider society (Kim, 2015).

3.10

Relationship significance

Separation of control and ownership is one of the potential issues associated with most of the
companies can be resolved with the level of relationships built using the corporate governance.
Important aspects like individuals, institutions and blockholders can also be analyzed against the
shareholders interest, where the relationship traits considered in this context are evaluated with
the help of corporate governance strategies. Minority shareholders are involved over evaluating
the ownership and control, where the company assets and required relations are also estimated
with the role of corporate governance (Geng, 2012). Direct monitoring can always be done using
the corporate governance, where the significance of relationship is crucial in this context.
Performance can be damaged if poor corporate governance strategies are adopted within the
company, where always large exposure is required to establish the required relationship to
associate the control and ownership. It is noticed that across most of the public listed companies,
high concentration of ownership and control is achieved with the role of corporate governance
and thus the overall relationship is also improved both internal and external to the company.

3.11

Financial performance

Financial performance of any organization can be estimated using various factors like Net Profit
Margin (NPM) and Earnings per Share (EPS). Proper implementation of corporate governance
will lead to application of best principles and practices for the company at a satisfactory level. It
is also noticed that, NPM for the companies with good corporate governance have positive
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margins when compared with the companies with poor corporate governance implications. When
the case with Earning per Share (EPS) is considered, with the proper principles of corporate
governance, lower performance of companies can be optimized, where the net profit margin and
stock exchange can be enhanced in this context. EPS of the companies can also be optimized in
terms of performance, where the respective dividends can be shared or engaged within the profit
margin of the company (Oxelheim, 2011).

4. Conclusion

Main goal of the current discussion is to evaluate the importance of corporate governance for a
company and evaluate how the company performance can be improved in this context. From the
analysis done it is clear that, role of corporate governance is crucial in terms of enhancing the
company global presence and also improve the overall market share. It is also identified that,
most of the investors and stakeholders are always interested in investing and associating with the
companies with good corporate governance rather than with poor corporate governance
strategies. Required strategic decisions can be made with the support of corporate governance,
where the role of good leadership is also important in this context. Both the public and private
listed companies are benefited a lot with the proper implication of corporate governance, where
its role is crucial in deciding the exact market place and also to meet the level of competitive
advantage.

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