Benefits of Good Governance

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Corporate Governance refers to the way a corporation is governed. It is the technique by which companies are directed and managed. It means carrying the business as per the stakeholders’ desires. It is actually conducted by the board of Directors and the concerned committees for the company’s stakeholder’s benefit. It is all about balancing individual and societal goals, as well as, economic and social goals. Corporate Governance is the interaction between various participants (shareholders, board of directors, and company’s management) in shaping corporation’s performance and the way it is proceeding towards. The relationship between the owners and the managers in an organization must be healthy and there should be no conflict between the …show more content…

These tangible benefits also suggest that good governance helps enterprises through difficult economic times like the current financial crisis, since well-governed companies tend to deliver not only higher but also more sustainable value.
The benefits are real and measurable. For one, good governance leads to higher market valuation. Buenaventura, a Peruvian company, managed to improve its corporate governance and the CEO estimates that these improvements resulted in an additional 20 per cent increase in market valuation. Better corporate governance also decreases the cost of capital and helps to attract and retain shareholders. Credit Suisse raised its valuation of Brazil Telecom from “hold” to “outperform” because of governance improvements.
Empirical evidence shows that Companies Circle members, due to their focus on improved corporate governance, produced substantially better operational and market results than other Latin American companies. Their profitability reflected by average ROE (Return on Equity) of 21.7 per cent from 2005 to 2007 was higher than other firms in the same period (16.7 per cent). Companies Circle members also pay more dividends, which helps attract additional investors, and have better access to credit at a lower cost.
The report concludes that investors buying Companies Circle member stocks on December 31, 1997,

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