Question

In: Accounting

The importance and impact of good and bad corporate governance on the mining industry,why?

The importance and impact of good and bad corporate governance on the mining industry,why?

Solutions

Expert Solution

Corporate governance is a process and structure applied in running a company with the main objective to increase shareholder value in the long term by still paying attention to the interests of other stakeholders.

It incorporates the laws, policies and customs that direct and control a corporation. The term encompasses the internal and external factors that affect the interests of a company's stakeholders, including shareholders, customers, suppliers, government regulators and management.

Corporate governance is the structures and processes for the direction and control of companies. ... To avoid mismanagement, good corporate governance is necessary to enable companies operate more efficiently, to improve access to capital, mitigate risk and safeguard stakeholders.

Good corporate governance means that the processes of disclosure and transparency are followed so as to provide regulators and shareholders as well as the general public with precise and accurate information about the financial, operational and other aspects of the company.

The significance of good corporate governance in mining industry are ;

  • Importance of social responsibility

The Board of Directors has to protect the rights of the customers, employees, shareholders, suppliers, local communities, etc. This is possible only if they use corporate governance.

  • changing ownership structure

In recent years, the ownership structure of companies has changed a lot. Public financial institutions, mutual funds, etc. are the single largest shareholder in most of the large companies. So, they have effective control on the management of the companies. They force the management to use corporate governance. That is, they put pressure on the management to become more efficient, transparent, accountable, etc.

  • corporate performance

​​​​​​​ Improved governance structures and processes ensure quality decision-making, encourage effective succession planning for senior management and enhance the long-term prosperity of companies, independent of the type of company and its sources of finance

  • combating corruption

​​​​​​​Companies that are transparent, and have sound system that provide full disclosure of accounting and auditing procedures, allow transparency in all business transactions, provide environment where corruption would certainly fade out.

  • Accountability

​​​​​​​Investors directly or  indirectly entrust management of the company to create enhanced value for their investment. The company is hence obliged to make timely disclosures on regular basis to all its shareholders in Corporate Governance is integral to the existence of the company.

  • Enhancing enterprise valuation

​​​​​​​Improved management accountability and operational transparency fulfill investors expectations and confidence on management and corporations, and in return, increase the value of corporations.

Bad or Limitations in corporate governance

  • Increased Costs

Corporations have higher administrative costs because of greater administrative requirements than those required of LLCs and limited partnerships. Corporate boards must either meet or create resolutions to enter into financial arrangements or contractual arrangements.

  • Maintenance of Separation

Corporations, shareholders and board directors and officers must follow all the corporate formalities, including keeping annual meeting minutes for both shareholders’ meeting and board of directors’ meetings, documenting major decisions as board-approved. Even corporations owned and governed by one shareholder in multiple director roles must adhere to all formalities

  • Corporations Governed by Statutes

Corporations are governed by federal and state statutes. One major reason business owners form corporations is to limit the owners' liability to the amount of their investments. Another reason founders form corporations is because corporations are permitted to raise capital by selling stock to investors and have a long legal and case history to support this.

  • Fiduciary Duty of Board

    Officers and the board of directors have fiduciary duties to act in the best interest of the corporation. If they breach those duties by not exercising honest and prudent care, they can be held liable.


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