Effective Corporate Governance as a Tool for Company Improvement

Corporate governance is a system or mechanism used to direct or control an organisation. Corporate governance affects the way a corporation is directed, administered, or controlled. A company, especially a large enterprise is run under the separation of ownership and control concept which is owned by shareholders and managed by directors. Corporate governance will ensure that the best interests of the company and stakeholders are safeguarded. The stakeholders include shareholders, employees, suppliers, customers, the government, and communities.

Sound corporate governance will help to make companies more difficult to fail. The overall company’s performance was improved by good supervision and management. Corporate governance provides ultimate authority and responsibility to directors. Directors will set the entity's strategic direction and guide the company towards achieving the company's objectives and stakeholders' expectations. Good corporate governance helps reduce the risk of corporate failure.

Besides, a good corporate governance manages and reduces the business risks. Good corporate governance has strong internal control systems. The system will help to manage the business risk, including the inherent risk and control risk. Directors will ensure the system is working effectively on a continuous basis and being monitored. Good corporate governance helps to reduce the risk of material misstatements and minimise the risk of company failure.

Other than that, good corporate governance will ensure the transparency of the company. The company will need to disclose the information to the company's main stakeholders such as shareholders, employees, government, and banks. The free flow of information in the form of accounts and other reports enabled strong and balanced economic development. For example, different company departments are able to obtain and share company information effectively and efficiently, which helps to increase the company's profitability and make it more difficult for companies to fail.

Furthermore, good corporate governance should establish an internal audit function. A strong internal audit represents sound corporate governance. Internal audits help to improve the company's financial controls and operational controls. Although the internal audit is not mandatory by law or regulation, it helps to examine the effectiveness and efficiency of companies' internal control systems and provide recommendations for company improvements.

In addition, good corporate governance provides equitable treatment to all shareholders. Minority shareholders and foreign investors should receive the same parity of treatment as majority shareholders. Directors need to get in touch with the interests and views of all shareholders. The equitable treatment of shareholders represents sound corporate governance and makes it more difficult to fail.