Corporate governance is the rules of conduct that keep businesses from going under. In the news, we hear about companies with poor corporate governance. Corporate governance policies establish clear lines of authority, which reduce the risk of financial loss, waste, risk and corruption. They aid the company in achieving its business goals while creating value for employees and shareholders.
Smaller enterprises need strong corporate governance as much as large firms. Having established procedures and processes can prevent problems that can create distrust and cause legal or regulatory troubles. Small business owners need an organization that is clear to guide their expansion. A strong board of directors can provide oversight and direction to help businesses grow.
A strong board of directors can help companies avoid the kind of scandals that have afflicted public corporations in recent times including the Enron meltdown and subsequent fraud investigations. The scandals have led to stricter record-keeping requirements and heftier penalties for companies that have violated securities laws.
Corporate governance also includes an checks-and-balances system to reduce conflicts of interest among participants and with any one stakeholder. It could include a policy on conflict of interest that requires disclosure of any potential conflicts and methods to report any violations or suspected misbehavior.
A strong board of directors can be a vital link between a company and its investors, creditors and customers. It can help create the value systems that will influence the company for years to come and ensure that management has the information they require to make sound decisions. It can also assist companies to determine and prioritize the most important factors that determine its future success.
