Corporate governance has been one of the most discussed issues in the business world for the past decade. Especially after the financial turmoil, many scholars pointed out the failure of corporate governance as one of the causes of the crisis. This article will attempt to define corporate governance and explain how to build solid and sound corporate governance that will benefit both stakeholders and shareholders.
Attempting to defining corporate governance
Since corporations have become quite large and complex, governance has become an important issue both internally and externally. Definition Before defining corporate governance, we firstly need the definition of governance and corporate. The definition provided by the Merriam Webster's Dictionary is that a corporate is one which is united or combined into one unit or one body. It mostly applies to the unification for business purposes to form organisations that we commonly call corporations. Governance On the other hand, governance is defined by the same dictionary as the act and process of being governed. Thus, corporate governance is a set of rules, regulations, acts, and processes that deal with the ways in which a corporation conducts business. It relates to all the policies of how it is administered. Thus, corporate governance is not one dimensional but multidimensional. It is something that directly or indirectly affects all stakeholders of a business.
Building solid corporate governance
Towards a solid governance
From the very definition that we attempted to give, it is clear that we are not dealing with a single governance process or model. The way the rules and acts of governing a corporation can be set in different ways by its management. That is why, the first step toward sound corporate governance is constructing a solid governance structure and defining a governance framework. Framework and structure It is within this framework and structure that the policies, rules and regulations will be designed and enacted. For this reason, many corporations have a code of corporate governance. Furthermore, many companies nowadays have realised that it is only through good corporate governance that they can build solid brands and be positively perceived by the customers. There are many cases where corporate governance issues such as neglect has been a major player in ruining a business. The Enron case is just a perfect example for this. The lack of concern regarding corporate governance is a mistake that corporations are not willing to do anymore.