MEANING OF CORPORATE GOVERNANCE
Corporate governance is the system of rules, processes, and practices by which a firm is directed and controlled. Corporate governance essentially involves balancing the interests of a company’s many stakeholders, such as management, shareholders, financiers, customers, suppliers, government and the community. in other word Corporate governance can be defined as the way a corporation is governed. It means carrying the business as per the stakeholders’ desires.
IMPORTANCE OF CORPORATE GOVERNANCE
1. Changing Ownership Structure
In past years, the Capital structure of companies has changed a bit. Mutual funds, Public financial institutions, etc. are the single biggest shareholder in most of the large companies. So, they have the power to control the management of the companies. They force the management to use corporate governance.
That is the way how they put pressure on the management to become more efficient, accountable, transparent, etc. The also ask the management to make consumer-friendly policies, to protect all social groups and to protect the environment. So, the changing ownership structure has resulted in corporate governance.
SEBI make the corporate governance compulsory for some company to protect the inverter and stakeholder interest. in the recent year many frauds, scams and corrupt practices have taken place so it the responsibility of SEBI to protect the stakeholder.
3. Economic Growth
Economic growth is the most essential part of any country. if the corporate of an economy is growing with good governance which leads to Economic growth. corporate governance plays a role in corporate to work well.
4. Improved Risk Management
Organizations with good governance had much lower risk profiles. From a regional perspective, strengthening Corporate Governance is a logical starting point to manage risk.
5. Importance of Social Responsibility
social responsibility is given a lot of importance in today’s world. The BOD have to protect the rights of the employees, shareholders, customers, suppliers, local communities, etc. it is not possible to implement social responsibility without the use of corporate governance.