What Is the Importance of Good Corporate Governance?

Corporate governance is a framework of policies and procedures large organizations and public corporations use to protect the financial interest of stakeholders. Good corporate governance will create a balance in the company where one group is unable to dominate the actions of the company.

Defined

Companies use corporate governance to outline the roles, responsibilities and purpose of job positions. This segregation plays a role in governance because it can shift power from executive managers to shareholders---the owners of a publicly held firm---and the board of directors, who act in the interest of shareholders.

Features

Organizations may restructure their governance to enhance their internal controls. Internal controls define how a company completes tasks or activities according to internal or external guidelines. Good corporate governance will remove internal control guidance from the sole responsibility of executive managers to ensure they do not have the ability to override the controls.

Considerations

Good corporate governance aims for a high level of transparency and accountability in the company's operations. Companies need these attributes at all levels of their organization, from the board of directors and executives down to front-line employees. In transparent organizations, improprieties will quickly come to light, so the company can correct the issue before it becomes a major distraction for the company.

References

• BusinessDictionary: Corporate Governance
• "The CPA Journal": A Comprehensive Structure of Corporate Governance in Post-Enron Corporate America