Corporate governance refers to the set of procedures, rules, and
practices that guides the functioning of a company. It focuses on the
structure, operations, as well as control of a company. Corporate
governance aims to meet the long-term strategic goals of the
business, take care of the employee interests, and contribute
significantly to the local community. The main purpose of corporate
governance is to add value to the company (Garzón, 2021).
According to the stakeholder and agency theories, one of the
essential components of good governance is accountability.
Accountability refers to the act of taking responsibility for a certain
action and owning the decisions (Corporate governance | diligent
insights. Corporate governance, 2021). It involves providing
explanations about the different decisions and activities taken by
people in the company to the important stakeholders. The effect that
accountability has on the ethical climate of the organization is that it
helps in avoiding the risk of false blames. It creates a culture of
transparency within the company and helps in preventing potential
misunderstandings.
Fairness is another essential component of good governance in a
company. It ensures that all the stakeholders, vendors, employees, as
well as the community as a whole are treated equally by the board of
directors of the company. Fairness also has a significant impact on the
ethical climate of the organization. It ensures optimum satisfaction of
all the stakeholders and eliminates the chances of partiality or special
treatment for any of the stakeholders.
I feel transparency is also one of the most important components of
good governance in a company. It involves providing clear, accurate,
and timely information about different business operations to
important stakeholders. Transparency also positively affects the
ethical climate of the organization. It allows the company to continue
operating in an ethical manner. As all the important information about
the company is clearly disclosed, it minimizes the risk of unethical
practices by any stakeholders in the organization.
Corporate governance creates the practices and rules that provide
guidance as to the manner in which the organizations should operate.
It aligns the stakeholder interests, promotes ethical business
practices, and ensures financial viability. It helps in maintaining a
healthy relationship between the company and the important
stakeholders.
References
Corporate governance | diligent insights. Corporate governance. (2021).
Retrieved September 14, 2022, from
https://www.diligent.com/insights/corporate-governance/
Garzón Castrillón, M. A. (2021). The concept of corporate
governance.
