Answer to Question #165368 in Management for Harsh

Question #165368

Create a company using corporate governance principles


1
Expert's answer
2021-02-22T13:37:34-0500

Answer:


Step 1

Corporate governance refers to the principles adopted by an organization to achieve transparency, consistency, and integrity in its functioning. That is, the rules, policies, and practices that govern the internal functions of the entity form part of its corporate governance. Good corporate governance practices protect the shareholders' interest and sustain the company in the long run, especially in the context of transnational operations.

The core of corporate governance is related to oversight and ethical practice. The three main principles of corporate governance are transparency, accountability, and independence. These are incorporated into several functional practices in the entity. Let us see how a company can frame its corporate governance policy.

  • The company shall have a strong foundation for its management and oversight. The constitution and appointment of members of the Board shall be through a transparent process. The powers of the board to formulate corporate strategy, organizational rules, and performance outcomes shall be defined. The board shall perform within the risk management framework and code of conduct for legal compliances. The board's powers for making large expenditures and acquisitions as well as duties of disclosure and financial reporting shall be subject to authorization through committees. The board is responsible for safeguarding of company assets, financial reporting and other material disclosures.


Step 2

  • The company's organizational structure shall promote ethical and responsible decision-making. Policies and regulations shall address conflicts of interest, confidentiality, fair business practices, compliance with laws, and audits.
  • The company shall have a financial reporting framework for transparent and timely disclosure of all material transactions of the business. Reporting shall be according to standard accounting principles, legal provisions, and audit processes. An internal audit system for risk control and audit committee for robustness check shall be in place. Financial reports shall be prepared periodically and presented to the shareholders and other information stakeholders per established timelines under the law.
  • The board is responsible for upholding the shareholders' rights for information and participation in meetings. Tactics to oppress the minority shall not be encouraged.
  • Performance shall be evaluated through objective measures and fair remuneration policy should be formulated. Corporate strategy should incorporate inclusion and diversity.
  • Risk mitigation policy should be based on the business environment and culture of risk control should be built into the functions so that the assets are safeguarded. This includes identity, physical assets, trademarks, and so on.

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