Corporate Governance: The key for a successful business

What is Corporate Governance:

By definition, corporate governance refers to the way in which the companies are governed and controlled and to what purpose. It is concerned with practices and procedures so as to ensure that companies are run in such a way that they achieve their goals and missions.

From the perspective of shareholders, corporate governance is defined as a process for monitoring and controlling the management who runs the business, so as to ensure that they act in the best interest of the shareholders.

Why is Corporate Governance important?

It is obvious to say that business aim on maximizing their profits. In order to achieve that, the management of the Company sets their goals and objectives and govern the company in a way that moves it towards to achieve those goals.

Although a Company is a separate legal person, in reality it consists of several individuals who either own, run or manage the business. In most practices however, the owners do not have the time or the interest to run the business and so they appoint the so-called Directors. Therefore, Directors are appointed as the key individuals to run the day-to-day activities and manage the business on their behalf.

Usually Directors and shareholders are not the same individuals and practically the interest of the Board differs from the interests of the shareholders, creating thus a conflict of interests.

Consequently, it is of high importance for every company to find the most effective way to govern its businesses through which the interests of shareholders, directors and other stakeholder groups can all be sufficiently satisfied.

Consequences of poor Corporate Governance

The importance of corporate governance is particularly important for large public firms in which the separation of ownership and control is much wider than smaller entities. However, in the recent years, we have been informed of numerous corporate failures due to poor corporate governance.

In particular, a number of corporate scandals have raised questions about the way the companies are governed and the reasons of the bad governance. Examples of recent corporate scandals include Mirror Group Newspapers and Polly Peck International – UK in the early of 1990s, Enron and WorldCom – USA in 2001/02 and Lehman Brothers – USA in 2008. Other examples in the area of Europe include Ahold in the Netherlands, Parmalat in Italy and Siemens in Germany and more recently Olympus – Japan in 2011. From all the aforementioned scandals, the most well-known case is probably Enron Corporation – USA in 2001/02. According to Palepu, Healy et al. (2003) reasons for the collapse of Enron were numerous including the lack of communication and the failure of supplying the information in time as well as the significantly high compensations offered to management using stock options.

Beside Enron, numerous corporate scandals were held during the recent decades, creating thus a world of uncertainty with serious impact on the finance and business sectors. Good corporate governance is definitely a way for protecting the business as a whole as well as the interests of the Company’s shareholders and stakeholders. Therefore, the need of a good corporate governance should not be ignored for any case and we hope that we can build a world of successful businesses.

For the importance and the future of Corporate Governance, do not miss the Corporate Governance Conference, which will take place on 5^th of May, 2017 at Hilton Hotel in Nicosia.

Key Speaker:     Mr. Simon Osborne – CEO of ICSA, UK

For more information, please contact us at info@thecorpro.com

Article written by Maria Evangelou, Business Development Consultant