What Is the Importance of Corporate Governance?

by Osmond Vitez; Updated September 26, 2017

Business management is the coordination and distribution of economic resources throughout an organization. While smaller businesses typically rely on business owners to complete these functions, large companies often have several layers of management to oversee operations. Corporate governance is a managerial tool for extremely large or publicly held companies.

Significance

Corporate governance protects the financial interests of individuals in a company, whether they are owners, managers, employees or outside stakeholders. Governance includes guidelines or policies that provide a framework individuals must follow when working in the company. Publicly held companies often have a board of directors as the overseers of corporate governance.

Features

Companies use corporate governance to set a minimum standard of acceptable behavior for employees in the business. These features can include honesty, integrity, accountability transparency, fairness and proper relationships with other companies in the business environment.

Effects

Using corporate governance can create a competitive advantage for companies in the business environment. Governance that provides specific responsibilities for each owner, manager and employee in the company ensures little or no confusion for competing activities or tasks related to business functions.

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