{"id":5933,"date":"2020-04-02T12:31:11","date_gmt":"2020-04-02T07:01:11","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=5933"},"modified":"2022-11-16T12:58:30","modified_gmt":"2022-11-16T07:28:30","slug":"importance-of-corporate-governance-in-an-organization","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/importance-of-corporate-governance-in-an-organization\/","title":{"rendered":"Importance of Corporate Governance in an Organization"},"content":{"rendered":"\n<p class=\"has-drop-cap\"><strong><em>Corporate governance aims to ease effective, entrepreneurial and prudent management that can deliver the long-term success of the company.<\/em><\/strong><\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/importance-of-corporate-governance-in-an-organization\/#Introduction\" >Introduction<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/importance-of-corporate-governance-in-an-organization\/#What_is_Corporate_Governance\" >What is Corporate Governance?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/importance-of-corporate-governance-in-an-organization\/#Definitions\" >Definitions;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/importance-of-corporate-governance-in-an-organization\/#Four_Pillar_of_Corporate_Governance\" >Four Pillar of Corporate Governance<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/importance-of-corporate-governance-in-an-organization\/#What_is_the_Legal_Framework_on_Corporate_Governance\" >What is the Legal Framework on Corporate Governance?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/corpbiz.io\/learning\/importance-of-corporate-governance-in-an-organization\/#Why_Corporate_Governance_is_essential\" >Why Corporate Governance is essential?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/corpbiz.io\/learning\/importance-of-corporate-governance-in-an-organization\/#Who_are_the_key_participants_of_Corporate_Governance\" >Who are the key\nparticipants of Corporate Governance?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/corpbiz.io\/learning\/importance-of-corporate-governance-in-an-organization\/#Why_Corporate_Governance_is_Important\" >Why Corporate Governance is Important?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/corpbiz.io\/learning\/importance-of-corporate-governance-in-an-organization\/#What_is_the_purview_of_Corporate_Governance\" >What is the purview of Corporate Governance?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/corpbiz.io\/learning\/importance-of-corporate-governance-in-an-organization\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Introduction\"><\/span>Introduction <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In the year 1990, Industry Association on Confederation on Indian Institute introduced the term Corporate Governance. It was the voluntary measure to be adopted by the Indian Companies after availing <a href=\"https:\/\/corpbiz.io\/company-registration\"><strong>Company Registration<\/strong><\/a>, which touches the essential affair of the company, transparency, accountability, fairness, and responsibility. It is the way through which the companies are directed and controlled.<\/p>\n\n\n\n<p><strong><em>Importance of Corporate Governance is discussed below;<\/em><\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_Corporate_Governance\"><\/span>What is Corporate Governance?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In India,\nCorporate governance is set on policy, internal controls and procedures which\nform the plan of dealing stakeholders and company operations such as management,\nemployees, customers, industry bodies and government. The structure of such\npolicies should be such as to uphold the principles of transparency,\naccountability, fairness, and responsibility. <\/p>\n\n\n\n<p>The main intention of its to have sound management to take out economic efficiency in an organization. Sound corporate governance in an organization can achieve the goal of profit maximization and shareholder welfare.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Definitions\"><\/span><strong><em>Definitions;<\/em><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em> As stated by the Institute of Company Secretaries of India;<\/em><\/strong><\/p>\n\n\n\n<div class=\"shadow1\">\u201cCorporate Governance is the application of top Management Practices, Compliance of Laws in true letter and spirit and adherence to principled standards for effective management and distribution of wealth and release of social authority for sustainable development of all stakeholders.&#8221;<\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Four_Pillar_of_Corporate_Governance\"><\/span>Four Pillar of Corporate Governance<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/04\/image-6.png\" alt=\"Pillar of Corporate Governance\" class=\"wp-image-5935\" width=\"481\" height=\"378\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/04\/image-6.png 561w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/04\/image-6-300x236.png 300w\" sizes=\"(max-width: 481px) 100vw, 481px\" \/><\/figure><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_the_Legal_Framework_on_Corporate_Governance\"><\/span>What is the Legal Framework on Corporate Governance?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>The\nCompanies Act, 2013;<\/em><\/strong><\/p>\n\n\n\n<p>The Act deals with the\nprovisions of the constitution of the board, board processes, independent\ndirectors, board meetings,&nbsp; audit\ncommittees party transactions, audit committee, disclosure requirements in the\nfinancial statements, etc.<\/p>\n\n\n\n<p><strong><em>SEBI\nGuidelines;<\/em><\/strong><\/p>\n\n\n\n<p><strong><em>Stock Exchange Board of India<\/em><\/strong><sup><a href=\"https:\/\/www.sebi.gov.in\/\"><strong><em>[1]<\/em><\/strong><\/a><\/sup> is a governing authority having power and jurisdiction over the listed companies. SEBI issues regulations, rules, and guidelines to companies to protect the investors.<\/p>\n\n\n\n<p><strong><em>Standard\nListing Agreement of Stock Exchanges;<\/em><\/strong><\/p>\n\n\n\n<p>For the companies who\nhave listed their companies share with the stock exchange, the Standard listing\nagreement is mandatory.<\/p>\n\n\n\n<p><strong><em>Accounting\nStandards Issued by ICAI;<\/em><\/strong><\/p>\n\n\n\n<p>Institute of Chartered Accountant of India is an independent body, which issues accounting guidelines for the disclosure of a company&#8217;s financial information. <\/p>\n\n\n\n<p><strong><em>Secretarial\nStandards issued by the Institute (ICSI);<\/em><\/strong><\/p>\n\n\n\n<p>Institute\nof Chartered Accountant of India has secretarial standards according to the provisions\nof the new Companies Act. ICAI has issued the Secretarial standards on\n\u201cMeetings of the Board of Directors\u201d and secretarial standards on \u201cGeneral\nMeetings\u201d.<\/p>\n\n\n\n<p><strong><em>According to, Section 118(10), of Companies Act, 2013<\/em><\/strong><em>, every company (other than one person company) shall observe secretarial standards specified as such by the ICSI concerning general and Board meetings.<\/em> <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Why_Corporate_Governance_is_essential\"><\/span>Why Corporate Governance is essential? <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/04\/image-7.png\" alt=\"Legal Framework on Corporate Governance\" class=\"wp-image-5936\" width=\"530\" height=\"388\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/04\/image-7.png 607w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/04\/image-7-300x219.png 300w\" sizes=\"(max-width: 530px) 100vw, 530px\" \/><\/figure><\/div>\n\n\n\n<p><strong>Compliance\nand Risk Mitigation<\/strong><\/p>\n\n\n\n<p>Governance,\nrisk mitigation, and compliance have a direct relationship with each other. Company\nis governed on sound principles, that will work accurately to assure that compliance\nis legally implied over the company. Being stuck with the law and policies,\ncompany remain well prepared for any kind of trouble, so the company has risk\nmitigation. If a company is more disciplined in its operations, company can\nface any risk arising out of economic, political, or technological events. <\/p>\n\n\n\n<p><strong>Strengthen shareholder\nvalue;<\/strong><\/p>\n\n\n\n<p>However, there\nis no established relationship between corporate governance and the companies\nvalue in market, but corporate governance strengthens the shareholder\ncontentment. It plays an vital part in safeguarding the valuations of a company\nbecause the ultimate goal of good governance is to maximize the concerns of the\ncompany&#8217;s valued shareholders.<\/p>\n\n\n\n<p><strong>Improved organizational\nefficiency<\/strong><\/p>\n\n\n\n<p>Corporate\ngovernance is an important determinant of industrial competitiveness. Nowadays\nthere are many questions raised on the way a company is governed. Better\ngovernance ensures enhanced corporate performance and better economic results.\nCorporate governance lays the foundation for the behaviour of the company, the\nutilization of resources, product\/service innovation and overall corporate\nstrategies.<\/p>\n\n\n\n<p><strong>Crucial\nduring mergers &amp; acquisitions<\/strong><\/p>\n\n\n\n<p>Corporate Governance in India plays a critical role during restructuring events such as mergers and acquisitions. Not only does corporate governance of a company helps to differentiate between good deals from bad ones, but M&amp;A activity by a company with good corporate governance is better received by stakeholders in the market. Another aspect of being mentioned is that mergers and acquisitions also have the power to improve the quality of corporate governance of the organization.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/government-companies-annual-reports\/\">Importance of Corporate Governance in an Organization<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Who_are_the_key_participants_of_Corporate_Governance\"><\/span>Who are the key\nparticipants of Corporate Governance?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/04\/image-8.png\" alt=\"key participants of Corporate Governance\" class=\"wp-image-5938\" width=\"535\" height=\"349\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/04\/image-8.png 579w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/04\/image-8-300x196.png 300w\" sizes=\"(max-width: 535px) 100vw, 535px\" \/><\/figure><\/div>\n\n\n\n<h3 class=\"wp-block-heading\">Stakeholders<\/h3>\n\n\n\n<p>The\nstakeholders are the principal owners of the company who provide capital to the\ncompany instead of return received by them in the form of dividends on the\nearnings of the company. The individual shareholders take part in corporate\ngovernance procedures by exercising their voting rights on the key decisions of\nthe company is <\/p>\n\n\n\n<p>in\nthe interest of all stakeholders. The further institutional shareholders of the\ncompany like, insurance companies, NGO, investment banks, etc. who have\nsignificant shareholding than other shareholders actively have a big role in\nobserving corporate governance activities of the company as they are attentive\nin market viability of the company in the form of big market shares. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Directors<\/h3>\n\n\n\n<p>The\nBoard of Directors is the main; we can say an important person to bring and\nimplement new corporate governance practices in the company. So that good\ndecisions can be made in favour of the company. Director has the power to set\nlong term strategy and distributing the higher responsibilities to run good\ngovernance structure. An effective board leadership can tackle all the company\noperations and monitor its performance in a fair and transparent way. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Officers and key managerial personnel<\/h3>\n\n\n\n<p>These are the top management person which includes CEO,\nMD, Director, and CS. They can advise the board to achieve the corporate goals\nby complying good governance practices in an organization. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Why_Corporate_Governance_is_Important\"><\/span>Why Corporate Governance is Important?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>It lays infrastructure of the accurately disciplined board and a healthy harmony between ownership and management, which makes the management capable of taking independent decision, along with building trust between the company and external shareholders of the organization. <\/li><li>It enhances the vital reasoning of the management by introducing independent director to the board, to bring the intellectual experience to the company, without any biased approach. <\/li><li>Its responsibility for the smooth performs of the company. <\/li><li>It instills fealty among investors as their interest is looked after in a top manner by a company that adopts good management practices.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_the_purview_of_Corporate_Governance\"><\/span>What is the purview of Corporate Governance?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>It imparts proper standards in the organization. It creates space for open communication by incorporating transparency and fair play in key operations of corporate authority. The implications of corporate governance lies in :<\/p>\n\n\n\n<ul><li>Accountability of Management to shareholders and further\nstakeholders;<\/li><li>Transparency in basic operations of the company and\nintegrity in financial reports generated by the company;<\/li><li>Component Board comprising of Executive and Independent\nDirectors;<\/li><li>Checks &amp; balances are an integral part of good\ncorporate governance;<\/li><li>Code of obligations for managing director and employees\nof the organization.<\/li><li>&nbsp;Open communication\nbetween organization and stakeholders of the company;<\/li><li>Investor Loyalty is a guarantor of best corporate\ngovernance practices.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The company should not only focus on profit, but there are also many factors required for the building company. Most of the companies neglect the part of corporate governance for granted, due to which company can reduce its market value, sale of the majority of the shareholder. However, the regular changes in <strong><em>companies Act<\/em><\/strong><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Companies_Act\"><strong><em>[2]<\/em><\/strong><\/a><\/sup> are the right direction to run the management smoothly and affair of the company in the interest of stakeholders. <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/shareholders-meeting-is-crucial-to-your-business\/\">Shareholders Meeting is Crucial to Your Business. Learn Why!<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Corporate governance aims to ease effective, entrepreneurial and prudent management that can deliver the long-term success of the company. Introduction In the year 1990, Industry Association on Confederation on Indian Institute introduced the term Corporate Governance. It was the voluntary measure to be adopted by the Indian Companies after availing Company Registration, which touches the [&hellip;]<\/p>\n","protected":false},"author":9,"featured_media":5941,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[415,120],"tags":[449],"acf":{"service_id":"321"},"authorName":"Shailza Sharma","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2019\/10\/IMG-20190927-WA0001-150x150-22.jpg","authorDescription":"Miss Shailza Sharma, BA. LLB graduate from Himachal Pradesh University. She holds an experience of 2.5 years in various Legal companies and organizations.","postViews":61245,"readingTime":5,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/5933"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=5933"}],"version-history":[{"count":24,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/5933\/revisions"}],"predecessor-version":[{"id":50728,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/5933\/revisions\/50728"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/5941"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=5933"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=5933"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=5933"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}