The Key Principles of Corporate Governance

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The principles of corporate governance are a collection of non-binding values that have been drafted to provide useful guidance to a business in terms of their business activities and association with their stakeholders. Following these principles will help a firm improve itself in terms of following the legal rules and regulations of business activities and turning itself into a more ethical firm. The key corporate governance principles are described below.

Effective Framework of Corporate Governance

This is the most basic and initial step that companies should take. Board of directors and company officials should build a proper corporate governance structure and delegate duties and authorities to everyone till the last level of the hierarchy. Ensure that all the employees in the organization understand their duties and the amount of flexibility and decision-making power that has been allotted to them. This will make it easier to monitor employees and their progress as well as identify employees who are not fulfilling their responsibilities.

The Rights and Equitable Treatment of Shareholders

This implies that shareholders belonging to the same class will receive equal treatment. They will be given all the rights that they have been promised. Some of the fundamental rights of shareholders include voting in shareholder meetings, receiving information and feedback about necessary changes required for the firm, transferring shares, obtaining relevant business material regularly and election or exclusion of board members.

The Responsibility of Stakeholders

Stakeholders focus on the development of employees and keep an eye on the company with regard to their compliance of established regulations. They are responsible for reporting any unethical actions that take place in the firm or any concerns regarding it. Moreover, stakeholders alert creditors and shareholders of the company in case the company is at a risk of insolvency or if the firm is unable to pay their dues on time. This will ensure that the company is complying with all rules and regulations and is not indulging in unethical business practices. As a result of this, employee performance and productivity will also increase as employees will be aware of working in an ethical environment.

Transparency and Disclosure

To implement good corporate governance in the firm, it needs to adhere to the full disclosure principle which necessitates the company to disclose or publicly reveal all ownership and shareholder rights, company’s financial statements, the business objectives of the company and the amount of salary paid to the key executives of the company. The company is also obligated to reveal its corporate governance policies, accounting procedures and risk factors relevant to the company’s business activities. Mostly, such information is mentioned in the annual reports of firms.

Companies that are more transparent and follow the best practice principles of good corporate governance are usually liked by shareholders and customers. Customers prefer buying products or services of an ethical company as they are aware of its importance. Employees too, like working in such companies as they know that they will be given their appropriate rights and that their health and safety will be taken care of in the workplace environment.

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