Corporate Governance: Fairness, Transparency and Accountability [Introduction, Components, Codes, Objectives, Needs & Importance, Principles of Corporate Governance]

Background of the Corporate Governance

The term corporate, governance is made from two different words corporate and governance. Corporate means an institution/company/ organization and governance means the system to run the organization.

In a very general sense, corporate governance is the system through which an organization is operated, directed and controlled by its  rules, practices and processes.

There is a balance to address the interest of the company's many stakeholders for examples, shareholders, senior management committee, executives, customers, the suppliers, the government and the entire community.

Corporate governance is guided to achieve the goal and objectives of the company.

Corporate Governance

What is Corporate Governance?

Corporate governance is typically perceived by academic literature as dealing with the problems that result from the separation of ownership and control. The definitions of corporate governance can be enlisted as follows:

It is characterized as striking a balance between individual and communal interests, as well as between economic and social aims. The governance framework is in place to support the effective use of resources while also requiring accountability for their care. (Sir Adrian Cadbury)

According to World Bank corporate governance can be defined from two aspects, namely corporation and public policy.

Corporate governance should have three basic components/features or qualities such as fairness, transparency and accountability (Wolfenshon, 2005).

It means when people begin to talk about corporate governance then it is popularly understood as promoting corporate fairness.

There should not be the injustice if we talk about fairness. Corporate governance or the regulating, operating and controlling system should be based on the value of fairness. When the company has been facing the problem of fairness or lack of fairness then it is believed that the company has some challenges and problems.

What is fairness in Corporate Governance?

Fairness is that value and standard which provide all the shareholder and stakeholder the opportunities to vocalize their grievances and to address any issues and problems related to the violation of their rights.

Nobody likes to be treated as inferior and looser. Any corporate organization should treat its shareholders, administrators and the consumers with the standard of fairness. There should not be any sign and smell of injustice and prejudice in the organization. That is to say everyone from shareholders to manger then salesman to customer wants to be treated based on their performance and result. Thus, this encourages organizations to that value which treats people with the standard of performance and result which is always based on the commitment and conviction.

What is transparency in Corporate Governance?

Generally speaking transparency is that feature and quality which includes openness and honesty.

Transparency is one of the essential elements, features and principles of corporate governance. Transparency in the professional and business world is understood in relation to many other aspects and features.

Transparency basically refers to the openness and honesty in the business context. The transparency principle intends to imply with with the concept that all the actions of an organizations should be meticulous enough to bear the public scrutiny.

The explosive innovation of social media the data of any company can become public at any moment. Although some of the data are kept secret and hidden intentionally by the organization, they may appear in social media and news agencies in any time. All the organization nowadays should be compatible and adaptive to the public and legal expectation. This is the main concern of transparency.

What is accountability in Corporate Governance?

Accountability refers to the quality or state in which things become accountable. It is especially to that condition and state in which we have an obligation or willingness to accept the duty and responsibility. In other words, accountability is to account for one's actions public officials lacking accountability.

Accountability removes the time and effort spending on disturbing and distracting activities as well as other unproductive activities and behavior. People in the business organization accountable for their actions, and also requires effectively teaching to value the work. Incase it is implemented then, It can increase the team members' skills and confidence.

What are the components, elements and aspects of Corporate Governance?

The common components/elements and aspects of corporate governance are as follows:

Accountability
Rights of Shareholders
Transparency
Interests of Stakeholders
Fairness
Good Faith
Diligence/attentiveness
Integrity and Trust     
Disclosure/discovery/expose  
Responsibility
Control and Commitment

What are the codes/rules/identification of corporate governance?

The common code and identification of corporate governance is enlisted as follows:

By observing thoroughly the prepared report of the entity’s financial statements,

It is identified with internal controls and independence of the entity’s auditors,

By reviewing the compensation arrangements for the chief executive officer and other senior executives,

On the basis of the way in which individuals are nominated for positions on the board,

The way resources are made available to directors in carrying out their duties.

What are the objectives of corporate governance?

Corporate governance has the following objectives;

To align/support corporate goals with goals of its stakeholders (shareholders, BOD, management team, employees, customers, society and so on).

To strengthen corporate functioning and discourage mismanagement.

To accomplish corporate goals by making investment in profitable investment outlets.

To specify responsibility of the board of directors and management in order to ensure good corporate performance.

To maintain the competitive advantage in the competitive market.

To establishing direction and objectives of the organization.

To creating and adopting polices and laws.

What is the need and importance of corporate governance?

Corporate governance has the following importance;

It makes sure corporate success and economic growth.

It uphold investors’ self-belief,  the organization may raise resources efficiently and effectively.

It helps to link company’s management along with its financial reporting system.

It helps in supporting investors by making corporate accounting practices transparent.

It supports in improving international image and enables home companies to raise global capital.

There is a positive impact because of corporate governance on the share price.

It offers appropriate incentive to the owners and managers achieving objectives in interests of the shareholders and the organization.

It supports in minimizing wastages, corruption, risks and mismanagement.

It helps in brand formation and development.

It makes certain organization in managed in a way that fits the best interests of all.

What are the principles of Corporate Governance?

The key principles of corporate governance are as:

Rule of Law

The company should be directed and control with the rule of law. If there is no rule of law for a company or it is there but not in practice then the private company and organization cannot run smoothly and achieve the goal.

Transparency

The transparency is essential quality and principle of corporate governance. The present day business organization should be transparent in terms of its goals and objectives as well as the operation.

Responsiveness

Responsiveness helps any organization accountable on its duty and responsibility. Nowadays any organization or CEO has to be responsive towards all the qualities and performance. The customers and all employees should be responsive to the various code, rules and regulations.

Consensus Oriented

Every organization is the beautiful composition of workforce diversity. People from different culture, religion, language, caste etc come together to achieve both the objectives of the organization and the individuals. The diversity may increase the debate and conflict among different stakeholders. Consensus orientated principle helps to make consensus or agreement between and among the concern people.

Equity and Inclusiveness

The principle of equity treats the entire individual in terms of their ability and background. Some people are back warded from mainstream society in terms of education, civilization, technology, power and politics, those should get chance to participate, practice and enjoy the national and social provision and facilities. Thus, equity addresses the people not equally to all but on the basis of their needs and abilities.

In the same line, the principle of inclusiveness refers to the condition and guidelines which actually includes all the stakeholders both in their right as well as duty and responsibility.

Effectiveness and Efficiency

Effective and efficient goods and services are the goal of any business organization. Efficiency is defined as the capacity to do a task with the least amount of wasted time, money, and effort, as well as performance competency. The degree to which something is successful in delivering a desired result is characterized as effectiveness; success.

Accountability

Accountability is critical in the workplace to maintain work interactions transparent and fruitful. It basically means that an employee's activities should be assessed on a regular basis in order to offer him with feedback so that he may perform more successfully. Accountability also attempts to prevent workplace negligence and wrongdoing. Employees should be held accountable for their actions to the extent that they were aware of their actions. The accountability of an employee is inextricably linked to their job responsibilities. An employee can be held responsible for anything they do within the scope of their employment.

The principles of corporate governance can also be listed as follows:
Rights and equitable treatment of shareholders
Interests of other stakeholders
Role and responsibilities of the board
Integrity and ethical behavior
Disclosure and transparency

References

Timilsena, (2021), Business Communication Today.

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