Rules, policies, processes, and practices all together binding the working of a company is defined as corporate governance. Primarily, this term defines how a company is run and the activities or operations of the company are directed and controlled. The main focus of corporate governance is towards making a balance between both economic and social goals. It ensures that communal and individual interests are given importance along with working towards the company’s major objectives. The company as per corporate governance is accountable and responsible as well, to all its stakeholders which includes its customers, the local people, suppliers, employees, and alike.

Objectives of Corporate Governance

Corporate Governance is a term that helps businesses justify themselves in society. It aims at managing the organization efficiently along with ensuring the best for society. Some of the important objectives of Corporate Governance are:

  • Using all the available resources sustainably and making the optimum use of them through management. 
  • All the transactions taking place in the organization should be ethical and should be justifying the set of values followed by the business.
  • Giving equal importance to both social and economic goals.
  • To ensure utmost efficiency in the management of the organization.
  • Choosing an alternative that is favorable to both the societal and organization's goals, to perform any task.
  • Encourage the interest of both the community and business for the social reforms.
  • Making sure a decent number of independent executives and non-executives have a place in the Board of directors along with the company men who would be taking care of the communal interests.
  • Ethical and legal wealth generation should be made sure by the managers of the organization.
  • The satisfaction of the community at large along with employees and other stakeholders of the company to be given importance.
  • The workings of the organization should have transparency.
  • The stakeholder's right to information should be respected and all the material facts and other information should be disclosed to them.
  • The workings of the organization should be checked and monitored regularly.
  • A democratic style of working should be followed by the managers of the organization to obey the principles of corporate governance.
" Objectives of Corporate Governance"

Why Do We Need Corporate Governance?

  • Protection of Investors – Corporate governance has provided for securing the interests of investors. It states that the investors have got full rights to disclosure and transparency of all the material facts and figures. A company practicing corporate governance respects the investor's rights.
  • Accountability – Transparent financial reporting and behaving accountably towards society is much important for an organization to grow and corporate governance makes sure the sound and credible working of an organization.
  • Cross Border Transactions – corporate governance earns much faith of foreign markets in the organization ensuring transparency and credibility and therefore making the flow of global capital smoother.
  • Globalization – One can only get up with the global markets if it follows the International standards and corporate governance makes sure the rules are followed.
  • Bank Funding – To provide funding the banks and financial institutions check the financial position and soundness of the organization which is done with the help of corporate governance.
  • Managerial Efficiency – The managers are the one who runs the business organization and the managers work keeping in mind both social and economic interest is ensured through corporate governance.

Principles of Corporate Governance

  • Transparency - One of the key components of corporate governance is transparency. The company must ensure that proper transparency is maintained by organizing regular disclosure of information conducting AGM and other such meetings. Also, the investors have a right to be informed about the risks being taken, the opportunities and threats on the way, etc.
  • Trusteeship – Trusteeship requires the company to make use of the resources towards the welfare of the society and its people. The term ‘Trusteeship’ is largely based on the two principles of Shri Bhagwad Geeta namely Sambhawa, which means equality, and Aparigraha, meaning Non-possession.
  • Accountability – When the shareholders invest in the company the corporates become answerable to them and they are responsible to ensure the shareholders' interests in every decision they make. And not only towards the shareholders but the organization is liable to the society too. The day-to-day operations of the business are executed with the help of the society's resources and they are surely answerable to the community. This is what the principle of accountability says.
  • Protecting the Environment – Corporate governance emphasizes the sustainable use of resources. An organization may or may not pollute the environment but it is the borrower of the society's resources and therefore every organization has to behave responsibly towards the environment. Waste management should be given utmost importance and also recycling should be taken into practice to safeguard the surroundings.
  • The Welfare of Employees – The more an organization takes care of its employees more are they going to work efficiently and with a sense of oneness. Corporate governance very much makes sure the employees welfare. The company working on the principles of corporate governance upgrades its employees by providing pieces of training from time to time, motivating and encouraging them by rewarding, introducing scholarship facilities for their children, promoting employees based on their performance and along with others.
" Principles of Corporate Governance "

Corporate Governance and Its Importance

  • Provides a helping hand in the raising of funds from the market.
  • Ensures maximum growth and long-term success of the company.
  • Improves the efficiency of the company’s operations.
  • Depicts a good image of the organization in the global market, and ensuring sound foreign investment.
  • Safeguarding the interest of the investors and thus promoting more investors to invest in the company in the coming future.
  • Infuses a sense of democracy in the functioning of the organization and thus providing equal rights to the employees to speak and to be heard.


Corporate governance might not seem that important as it is in reality but it is a powerful tool for an organization. It is a framework that takes care of the rights of every personal relevance to the organization. No one can be denied their rights until corporate governance is obeyed.

Corporate Governance might look like a social affair but it has unimaginable results for an economy as well as the organization. One who follows the principles of corporate governance earns huge respect and status which indirectly affects positively in the success and growth of the organization. It takes nothing to run on the principles of corporate governance but, once adopted it provides a lot in return.

Context and Applications

This topic is significant in the professional exams for both undergraduate and graduate courses, especially for   

  • BBA
  • B.Com
  • M.Com
  • MBA

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