Question

Corporation Finance Question

How is the quality of corporate governance measured?

Answer 1

Answer:-

There are several parameters that are taken into consideration for a company to measure the corporate governance like

1) Board members should have good skills and experience to take decisions like products and services of firm, financial operations, legal issues, strategies and planning

2) The board has to be independent in order to take decisions that are not influenced or biased by the management.

3) The good corporate governance should also consider whether the company permits the shareholders to vote for the selection of board members.

4)The board members should be elected annually and not in staggered manner.

5) The board should be allowed to hire independent consultants

6) The board has to appoint separate committee to set an executive pay.

7) The board member if the company should not be the CEO of the company.

8) The board members should meet outside the presence of management.

9) The majority of board members are independent of firm management

10) The board members should not be aligned with the company's key suppliers and customers.

11) The board member should not have a long tenure as there are chances that he will favour the management instead of shareholders.

12) The company should use third party to calculate the votes of shareholders during selection of board members.

These are most of the good corporate governance practices that the company should follow.