Question

discuss how the modes of governance develop ?

Answer 1

Good Governance is needed to create a Good culture of Transparency, accountability and disclosure. It refers to compliance with all the moral & ethical values, legal framework and voluntarily adopted practices.

Good Performance: Improved governance structures and processes help 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. This can be linked with improved Good performance- either in terms of share price or profitability.

Enhanced Investor Trust: Investors consider Good Governance as important as financial performance when evaluating companies for investment. Investors who are provided with high levels of disclosure & transparency are likely to invest openly in those companies. The consulting firm McKinsey surveyed and determined that global institutional investors are prepared to pay a premium of upto 40 percent for shares in companies with superior Good governance practices.

Better Access To Global Market: Good Good governance systems attract investment from global investors, which subsequently leads to greater efficiencies in the financial sector.

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 will certainly fade out. Good Governance enables a corporation to compete more efficiently andprevent fraud and malpractices within the organization.

Easy Finance From Institutions: Several structural changes like increased role of financial intermediaries and institutional investors, size of the enterprises, investment choices available to investors, increased competition, and increased risk exposure have made monitoring the use of capital more complex thereby increasing the need of Good Good Governance. Evidences indicate that well-governed companies receive higher market valuations. The credit worthiness of a company can be trusted on the basis of Good governance practiced in the company.

Enhancing Enterprise Valuation: Improved management accountability and operational transparency fulfil investors’ expectations and confidence on management and corporations, and in return, increase the value of corporations.

Reduced Risk of Good Crisis and Scandals: Effective Good Governance ensures efficient risk mitigation system in place. The transparent and accountable system that Good Governance system makes the Board of a company aware of majority of the mask risks involved in a particular strategy, thereby, placing various control systems in place to facilitate monitoring the related issues.

Accountability: Investor relations’ is essential part of good Good governance. Investors have directly/ indirectly entrusted management of the company for the creating enhanced value for their investment. The company is hence obliged to make timely disclosures on regular basis to all its shareholders in order to maintain good investors’ relation. Good Good Governance practices create the environment where Boards cannot ignore their accountability to these stakeholders.