Corporate governance constitutes an element of the fully organized system that implies the business. Its essence is the impact on the enterprise as a complex of social relations to streamline them and preserve their specificity. In addition, effective corporate governance is formed under the current legislation.
The Place of Corporate Governance in Company Life
Good Corporate Governance implies the law that regulates the division of competence between the various bodies of the enterprise. Therefore, corporate leadership can be considered a system built under state laws as well as laws established within the company. The key task of such management is to protect the interests of participants in corporate relations from the possible illiterate activities of managers hired.
Corporate Governance Categories
Corporate governance is carried out in three areas:
- management of property or securities;
- management of the company production and economy;
- management of financial resources.
The mechanism of corporate management is a system of forms and methods that make it possible to control the company’s activities. They constitute organizational, economic, and legal ways of solving managerial problems. The essence of corporate governance is the process of balancing the interests of all members of the organization through the implementation of accepted business circles and established ethical and procedural standards of conduct.
Corporate Governance Advantages
The most reputable corporate governance experts are positive that there is a direct link between good corporate governance practices and long-term shareholder value. The advantages of corporations determined the leading role of this organizational form of business in the modern economy.
Corporations also have one clear advantage – limited liability. The owners of a corporation risk only the amount they paid to buy the shares. Their assets are not put at risk, even if the corporation is threatened with bankruptcy.
Separation of Owners from Management
Corporations can raise funds from many different investors without involving them in management. The owners elect a board of directors. The directors select the top management team. It employs managers as well as workers and employees. The owners thus have some influence over what runs the corporation, but no control over it.
More Money to Invest
The corporation is much more efficient than all other forms of business organization in coping with the task of raising capital. Corporations have a unique way of financing, that is, through the sale of stocks and bonds, which allows them to attract the savings of numerous households.
High Degree of Specialization
Due to its advantage, it is easier for a successful corporation to increase volume in raising money capital, expand the scale of operations, and realize the benefits of growth. In addition, corporations may buy other corporations operating in other industries to diversify risk.
As a legal entity, a corporation exists independently of its owners and its officers. Individual firms can die suddenly and unpredictably, but corporations, at least legally, are eternal. The transfer of ownership of a corporation through the sale of shares does not undermine its integrity and business continuity.
Tasks of Corporate Governance
Corporate governance arose because several very specific tasks appeared, namely:
- long-term business development and strategy implementation;
- uniform rules of work, regardless of the level in the corporate hierarchy;
- accountability of managers for specific indicators within specific tasks.