How Corporate Governance Helps Improve A Company’s Bottom Line

By Author: Akansh
Total Articles: 67
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Corporate governance is a structure of rules and practices that gives direction and controls a company. Sound administration practices not only help boost a company’s performance but also enhance profitability and thus shareholder confidence. In today’s dynamic business environment, investors are increasingly looking for companies that have a sustainable business model and a clear direction.

Keeping in mind the requirement of investors, companies are proactively implementing directive measures. It is, however, important for management to realize that not all measures are effective. To implement best practices which are effective and economical, it is best to have a corporate governance advisory team. A specialized team will formulate a strategy that will that implements measures that are effective in achieving organizational objectives. A good corporate governance strategywould aim to improve control mechanisms.

One of the important aspects of is board attributes. Certain recommended attributes are:

-The Board’s chairman should not be a part of the executive committee
-The size and composition ...
... of the Board should be able to meet the reasonable expectations of most investors in most situations
-Different committees should be established for detailed oversight

A company’s performance is greatly impacted by the number of directors and number of committee meetings with board. Larger boards bring in higher knowledge into the decision-making and hierarchy processes. Committees such as audit, nominating, remunerationand risk are the main influence on boards’ most important decisions. More the committee meetings, better is the efficiency.

Studies have revealed that companies following good corporate governance managementperform better andmaximize total revenue for any given level of borrowing and operating expense.Good administration has intrinsic links to profitability. Regulators pursue fewer control failures and higher stability. Investors insist on knowing the role of the board to be assured that their money is in safe hands.

Neglecting risks and weak administration structure can have serious consequences. There have been cases where companies have been declared bankrupt when falsely inflated profits and hidden losses have been discovered. Regulators have developed new tools to supervise financial markets, financial institutions and stock exchanges to identify early signs of weak administration.

Companies, today, are increasingly adopting strategies to strengthen their line of control. Boards are realizing the pivotal role of sound administration in building shareholder confidence. Boards and committees are focusing on setting up a robust system of policies, procedures, authority and responsibility so that they can be seen as a transparent company by regulators.

Akansh Malik writes this article, giving an insight into the relationship between good administration and profitability. He details the role of boards in effective corporate governance management.