Importance of corporate governance in today’s business scenario

DASMAN, Kuwait - Aug. 27, 2013 - PRLog -- Introduction

Corporate governance refers to the way that Boards oversee the running of a company by its managers, and how Board members are held accountable to shareowners and the company. In short, it is a method of governing the company like a sovereign state, instating its own customs, policies and laws to its employees from the highest to the lowest levels. Corporate governance is intended to increase the accountability of your company and to avoid massive disasters before they occur. Failed energy giant Enron, and its bankrupt employees and shareholders, is a prime argument for the importance of solid corporate governance.

Corporate Governance- In Kuwait

New companies Law for Kuwait (Decree Law No 25 for 2012), published on 29 November 2012 introduces a raft of new concepts and principals set to shape the way commercial entities operate in Kuwait. This is a significant step forward for businesses in Kuwait as the new law is set to dramatically improve the way companies are structured and how they operate. New Companies Law will require Kuwaiti companies to adopt more stringent adherence to best practice with regards to “Corporate Governance.” Here, where Performance Inc Kuwait Consultingcan offer its services in building a best governance system!

Why corporate governance is in need for today’s business?

Here we, Performance Inc Kuwait Consulting would like to explore four issues which in our view are keys to understanding the importance of corporate governance:  

·         The issue of integrity: weather they are the boards and management of companies carrying out their duties in an ethical way. Corporate governance system plays a vital role in forming the integrity within the organization The central issue today in the field of corporate governance is seen as possessed of integrity in the eyes of the general public. This is the spirit that gave support to the principle of setting up the Cadbury Committee, not simply a desire to lay down some rules on the financial aspects of corporate governance to prevent innocent fund managers being misled by greedy directors. And it is this integrity - perceived and actual - which underlines the importance of corporate governance, as it is the tool by which integrity can be encouraged, measured and projected.

·         Topicality - the bonus culture: could better corporate governance in financial institutions and their remuneration policies have prevented the credit crunch and resulting financial crisis?  The importance of corporate governance in this scenario is, in our minds, unquestionable. A better system of checks and balances would have picked up the warning signs that many people were sending that the level and criteria of lending was getting dangerous.

·         The regulatory framework: introducing more regulation has clearly failed - we need better regulation which ensures businesses recognize the importance of corporate governance as an integral part of management, not a box ticking exercise

·         The importance of corporate governance in Directors' training: prevention is better than a cure, so including knowledge of the principles and practice of corporate governance in mainstream director training is essential

It prevents scandals: Good corporate governance produces direct economic benefit to the organization and also it helps to prevent corporate scandals, fraud, and potential civil and criminal liability of the organization. It is also good business. The central issue today in the field of corporate governance is seen as possessed of integrity in the eyes of the general public. This is the spirit that gave support to the principle of setting up the Cadbury Committee, not simply a desire to lay down some rules on the financial aspects of corporate governance to prevent innocent fund managers being misled by greedy directors. And it is this integrity - perceived and actual - which underlines the importance of corporate governance, as it is the tool by which integrity can be encouraged, measured and projected.

Image of an organization: The perception of good corporate governance is an important ingredient of the image of an organization, whether public, private, or nonprofit. A good corporate governance image enhances the reputation of the organization and makes it more attractive to customers, investors, suppliers and, in the case of nonprofit organizations, contributors. The corporate scandals that gave rise to that legislation have increased pressure on all organizations (including family-owned businesses and not-for-profit organizations) to have better corporate governance.

Conclusion

The application of the corporate governance principles will ensure a better economical environment for companies and especially for financial organizations. This is necessary taking into account the difficulties of the current situation in the economy, where financial organizations are reluctant in supporting the private companies with financings. If such situation will continue, the local economy will start to face serious problems and companies will suffer the lack of liquidity. Therefore, the enhancement of the local corporate governance framework will serve as a good support for organizations and will reverse the current situation in favor of the economic market.