Corporate governance is the system of rules, practices, and processes by which a firm is directed and controlled and it drives the operations and performance of a company. Corporate governance essentially involves balancing the interests of a company’s many stakeholders, such as shareholders, senior executives, staff, customers, suppliers, financiers, regulators, the government, and the community.
Governance refers specifically to the set of rules, controls, policies, and resolutions put in place to dictate corporate behaviour. The board of directors of a company is pivotal in governance, and poor governance can have major ramifications on shareholder value.
Since corporate governance also provides the framework for achieving a company’s objectives, it encompasses practically every sphere of management, from action plans and internal controls to performance measurement and corporate disclosure.
A company’s corporate governance is important to investors because it shows a company’s direction and business integrity. Good corporate governance helps companies build trust with investors and the community. As a result, corporate governance helps promote financial viability by creating a long-term investment opportunity for market participants.