Corporate governance is the system of rules that govern the processes and relationships by which companies are controlled and operated. The purpose of corporate governance is to ensure the interests of all parties are taken into consideration: shareholders, senior managers, customers, suppliers and financiers.
There are a myriad of arrangements, and companies will often alter their governance when they expand. Governance is important to a company regardless of its structure because it facilitates good communication with owners, which can help enhance the performance of the company. Governance is essential to ensure the business is fulfilling its legal obligations and obligations. It is also a vital aspect of risk management.
Transparency for investors can help the company secure investment. It will also reduce both the cost of capital as well as the cost of equity. A committee structure that is efficient will allow the board to address issues more efficiently and effectively. It will help the board to identify and prioritize the most pressing concerns and provide the means to delegate authority to management or committees.
A board should comprise a mix of non-executive and executive members with different experience. The directors should be professional and business minded with a strong adherence to the business and the ability to debate and challenge. The board should be able to assess the CEO and participate in the evaluations of senior managers when appropriate.
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