Corporate governance is the term used to describe both a company's overarching business strategy and the way it functions internally. This can include everything from the construction of its board of directors to how new employees are interviewed and screened for hiring. A business without an effective corporate governance strategy risks its investors losing confidence along with a large chunk of money.
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Corporate governance is the accumulated rules, policies, procedures and laws affecting the way in which a corporation operates, makes decisions and develops its relationships with shareholders and the public at large. Accountability is another major facet of corporate governance with executives and other decision-makers bound by the agreed-upon policies of the corporate governance plan to always act in the best interests of the company and its shareholders or stakeholders.
Why Corporate Governance is Important
Every business needs a strategy for how it plans to run its internal operations from top to bottom. How effectively a business implements its plans relating to corporate governance can have a dramatic impact on its stock value and its public perception, according to the United Nations Global Compact. Additionally, if lending institutions believe a corporation or other business is run poorly due to a lack of corporate governance, the business could find it difficult to raise capital.
Anti-Corruption Measures in Corporate Governance
An effective corporate governance strategy can work to eliminate internal corporate corruption by creating a climate of transparency where shareholders are fully informed of business decisions and long-term business plans. This also affects investment demand; more consumers will want to be a part of a company that is doing business responsibly and with the impact of business decisions on the world community in mind.
Corporate Governance and Integrity
As of 2010, in the wake of eroding pension plans and vanishing life savings, many Americans have lost confidence in Wall Street and publicly traded companies. High standards of corporate governance relating to integrity and responsible business practices can help restore consumer confidence in financial investment in the stock market. Responsible business practices may include sticking to the plans for growth disclosed to shareholders, handling money investments responsibly, and managing risk factors as well as government regulations and the environmental impact of doing business.
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