What Is Corporate Governance
Nowadays people in the business world are talking about good corporate governance. Companies with good corporate governance are perceived by the public as a company that been handled properly by its management. Few companies had been names as among the worst in corporate governance like Enron, World. com and Barings. But what is exactly corporate governance? The term ‘corporate governance’ is coming from two words. The adjective ‘corporate’ comes from the noun ‘corporation’; while the noun ‘governance’ is derived from the verb ‘govern’.
When these two words linked together, it simply refers to a group of people getting together as one united body with the task and responsibility to direct, control and rule with authority. This group or body in a collective effort is empowered to regulate, determine, restrain, curb and exercise the authority given. As we understand its definition, let’s take a look what this corporate governance focus on, its issues and other fact related to it. Corporate governance looks at issues pertaining to transparency, integrity, effectiveness and accountability in the management of affairs, business conduct and all other activities of an organization.
These issues are the keywords on corporate governance. Any decline in these core principles of corporate governance could
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In ensuring the top level management honors their job with very much respect and dignity, the Malaysian Government had introduced The Code of Ethics for Company Secretaries and Code of Ethics for Company Directors on 4 July and 8 August 1996 respectively. The ethical guidelines for these two important functional positions should augur well in the exhibition of superior corporate governance. Malaysian Institute of Corporate Governance was established two years later to ensure there is a body to regulate more credible corporate governance in corporations.
1 The Code of Ethics for Company Directors revolve around corporate governance and corporate behavior, bent to fulfill the objective of upholding the spirit of social responsibility and accountability in line with the legislations, regulations and guidelines governing a company. While the purpose of the Company Secretary’s code of ethics is to enhance the standard of corporate governance and to instill professionalism among Company Secretaries within the tenets of morality, efficiency and administrative effectiveness.
The corporate governance is been strengthen with the Company Act 1965 that conceptually binds the directors as responsible for the governance of their companies. The directors are compels to report the state of their companies with ‘true and fair’. It is not mean to report it accurately but it implies that material error does not exist. A board of directors is governing its company with a good governance when they know who are parties involved. Usually there are two parties; a party that expects corporate governance and another party that dispenses or ensure the corporate governance.
Parties involved in expecting good corporate governance could be the investors, the public and the interest group. While the party that dispenses it would be the company’s employees, its board and the management team. In working together, the expectation from the other party will be reach. Enforcing and implementing corporate governance in a company is easier to say than done. It is hard for a few companies to look at it as a good principle. They might think as long as they get the return on investment and make a profit, it is an okay way. That is why corporate culture is deemed as the best medium in implementing corporate governance.
There is in fact a symbiotic relationship between corporate culture and corporate governance in that the former very much influences the latter. In simple words, if a culture of a company is already revolving around the principles of corporate governance like integrity, openness and accountability it will be an easy task to implement it fully. A corporate culture that nurtures corporate governance would appreciate things like belief in staff training and development, management concerns for its people, their welfare and their future, the board’s consideration of investors’ monies and shareholders funds, and belief in open communication.
2 To summarize, corporate governance is a way to ensure that the directors, the management and its employees have no conflict of interest in pursuing the company’s objective and goals. In its broadest sense, corporate governance is the framework within which organization operate. Corporate governance could be linked to such ‘guarantee or undertaking’ that there are reasonable openness, fair accountability and commitment, and honesty on the part of those that governed or managed a company for the dignity and good corporate citizenship expected of an entity.