- Corporate law dictates the formation and the activities of corporations.
- Corporate governance regulates the balancing of interests among a business’s different stakeholders.
- Shareholders, they are the owners of a business and are the ultimate decision-makers on the direction of a company.
- Objective of corporate governance is to lessen the tension between management performance and shareholder objectives
Before we get into this article, lets us first clarify the difference between corporate laws and cooperate governance. To put it plainly, the idea of Corporate law tell us the formation and the activities of corporations, while corporate governance regulates the balancing of interests among a business’s different stakeholders. In this aspect both of Corporate law and governance therefore directly shapes what businesses do and how they do it. Another concept I would like to bring to light is Shareholders, they are the owners of a business and are the ultimate decision-makers on the direction of a company. In addition to this, the cooperate governance refers to the management of a company has the day-to-day decision-making power, shareholders guide the strategy, financing and selection of management of the firm. Shareholders are the management of the firm. The Shareholders in addition receive the benefits of dividends and the appreciation of the company's value.
In furtherance, the corporate meltdowns of the 21st century, which arose from managerial misconduct, fraud and negligence, made clear the importance of corporate governance. In order to ensure an organization’s leadership makes decisions that deliver on performance objectives while protecting and promoting shareholder investment, the vital importance of corporate governance is clear.
The objective of corporate governance is to lessen the tension between management performance and shareholder objectives, which can arise due to the differing interests of these two parties
THE RELATIONSHIP BETWEEN COPERATE GOVERANCE AND SHAREHOLDERS
Corporations have a lot of pressure to create their own policies and to govern themselves, but all public corporations must understand that corporate governance is something important to investors. It goes without saying that, “strong governance gets noticed by shareholders, stakeholders, employees and customers alike and has a strong bearing on a company’s reputation.” Consequently, the strength and hold of a company’s corporate governance principles can lead to either a higher or a lower valuation of a company.
In addition, the idea of good corporate governance ensures transparency and accountability, and can prevent corporate scandals, fraud and issues pertaining to corporate liability.
Corporate governance is vital to investors, and shareholders have rights and expectations under good corporate governance principles and practices, their stake in corporate ownership makes their investments less susceptible to system risks.
Furthermore we can say that, “good corporate governance principles provide a system of checks and balances that helps to balance the power and ensure that there are benefits for everyone involved.” The idea of Corporate governance is an important structure whereby the shareholders own the operation, managers run the operation and board directors oversee the operation as agents of the shareholders.
Although, the shareholders in a company have limited power to intervene, they have a lot of power as owners in the company. In this regard, the Shareholders must elect the board of directors with the expectation that the board will fulfil their fiduciary duties and keep the best interests of the shareholders at the forefront of their decision-making.
The Shareholders expect boards to run as efficiently as possible. Shareholders also reasonably expect that the board will perform strong oversight to ensure that the performance by officers and managers is ethical and strong. Take for example, that when the company’s performance begins to slide in a negative direction, shareholders have the right to question whether board directors are truly independent. The intent of good corporate governance principles gives shareholders the right to ask questions to affirm that the board and management are doing their best to increase shareholder value and to ensure that the board will be accountable to them.
It is famously said that “good corporate governance ensures that the company has the proper rules, policies and practices to create long-term shareholder value.” Consequently, when the company’s performance is low, shareholders have every right to start asking questions.
The Shareholders of a company are given the right to ask questions about how much ownership each board director has in the company and whether there are any conflicts of interest or interpersonal relationships between the board and management? It is highly likely for shareholders to want information about how boards structure management’s pay and how they disclose it.
To end it plainly, Corporate Governance exists so that the interest of the directors of a company are in line with that of the shareholder, viz, the one who contributes funds to the company. In conclusion, corporate governance is implemented by a board of directors that approves and monitors management decisions. Consequently, a board of directors is the primary means by which shareholder and management interests are balanced, board objectives related to such issues as strategy and risk equate to corporate governance objectives.
In conclusion, the above mentioned points shed light on the relationship between Corporate Governance and the legal origin of shareholders.