Question

Elaborate on the concept of Corporate Governance and discuss the Governance Test

Answer 1

Corporate Governance is a system of rules, practices and processes through which a firm can be directed and controlled by its stakeholders. Corporate Governance is refers to balancing between all the stakeholders of a firm. It also provide framework for attaining a company’s objective in an effective way. It shows business’s direction and business integrity to investors. Good corporate governance helps companies to build trust with investors and the society. It promotes long-term financial viability and long-term investment opportunities to investors. Good corporate governance creates a transparent rules and controls for specific shareholders in which stakeholders (majority) have aligned incentives. Bad corporate governance can cast a doubt on a company’s integrity and reliability to shareholders and it will result into negative impact on firm’s financial health.

The governance test is a method through which we can measure corporate governance performance. In it we measure-

1. To protect rights and interests of the shareholders

2. To enhance the board of director’s function

3. To focus on employee rights and employee care

4. To respect the rights of related parties (directly or indirectly related)

5. To enhance information transparency in the system