Corporate governance is defined as an intricate system of rules, practices and processes which guide the operations of an organization. The rationale of the concept is to promote efficiency and accountability in the daily operations of the company. The Board of Directors is usually the principal organ of corporate governance as its rules, policies, practices and procedure trickle down to other organs of the organization. Consequently, good corporate governance is perceived as the panacea of all corporate malpractice.
Poor corporate governance is ghastly to the performance of an organization and can lead to total collapse of the organization
First, corporate governance promotes the integrity of a company and safeguards its reputation in public. Good corporate governance ensures routine meetings of the board directors, the effective exercise of control over the business and clear demarcation of responsibilities within the organization. Further, good corporate governance ensures statutory compliance, proper reporting and disclosure mechanisms, risk management and prevents fraud in the organization.
Good corporate governance thus culminates into a successful organization as the internal operations are optimized. It also involves the implementation of a company’s corporate strategies. Corporate governance acts as the link between an organization’s strategies and their implementation. An organization can formulate very good strategies; however, the strategies needs the requisite systems for implementation and good corporate governance is the avenue to the realization of those strategies.
Poor corporate governance is ghastly to the performance of an organization and can lead to total collapse of the organization. Sports Direct, is a company that widely serves as a case study for the ramifications of poor corporate governance. In 2019, details of the company’s shocking poor governance decisions hit the UK media and the company was labelled an “embarrassment to UK corporate governance.” The directors and its founder, Mike Ashley were accused of running the organization without any regard to corporate governance including authorizing payouts to some of the directors’ relatives. The result was a massive share plummet and public embarrassment which have since derailed the performance of the company. Evidently, good corporate governance is synonymous to corporate success.