Compiled from: Center for Corporate Governance http://ccg.or.ke Benefits of Corporate Governance for Companies Corporate governance is normally linked to big companies, but small companies can also benefit from this practice. This is because whether big or small, a company might be making mistakes and breaking certain rules without their knowledge. To avoid getting on the wrong side of the law, a company
needs to make use of a corporate governance expert who will help bring in procedures that will help the company stick to the initial objective of making money in the business. A company that practices good corporate governance eventually enjoys the benefits that come with it. Governance focuses more on rules that create better management and lower the risk of falling into ethical and legal battles. The benefits that corporate governance brings to an organization include:
A good reputation for the company
When a company decides to incorporate corporate governance program into their system, the reputation of the company is boosted to a higher level. More stakeholders are attracted and will be willing to work with a company that has made public their governance policies in place. Lenders will be willing to be associated with this kind of company because they are convinced the company has strong policies and internal controls. Other stakeholders may include: the media, buyers, suppliers, employees and even government representatives. The word here is transparency, that is, making your internal controls known to your stakeholders, and that is one thing most stakeholders prefer.
Fewer legal battles
Every company is mandated to always adhere to the rules of the state regarding companies at all times. For instance, some states demand that a company’s hiring policies and practices be reviewed every now and then by the management team. There is also a rule on equal employment opportunities where different people from different backgrounds should be employed as long as they qualify. All these policies, when disregarded, may lead a company into a legal battle. Corporate governance policies ensure that these rules are followed, hence saving the company from such battles.
Lesser conflicts
Having corporate governance ensures that employees are rid of potential bad behaviors, conflicts and fraud. For instance top managers and executives might be stopped from hiring their relatives only and giving contracts to companies they have an interest in. If there is money to be withdrawn from the bank, a policy requiring 3 or more signatures before the money is withdrawn can be put in place. This will reduce fraud and protect company funds from improper use.
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Improved profitability
A company that practices corporate governance has the potential of increasing profits. Staff in such companies get motivated to work smarter and harder when they see the effort that the management is putting into improving the organization. When staff are motivated, it is evident in their productivity. Motivated staff always towards the success of an organization, unlike demotivated staff. Profitability is also increased because the staff that are there will not want to leave and work elsewhere, for this reason a company will be able to retain all its workers, this helps in cutting the costs of hiring new people.
Clarity of roles
When governance is practiced, executives will be able to differentiate the different roles and also to delegate roles to the right people. With governance, you are able to tell what every employee is good at and assign them roles in that regard. Every employee will be able to know what their roles are and this will make work easier as everyone will be doing what they know. When you are doing something that you are conversant with, you save a lot of time and energy in it, meaning you will do more within a short period thereby improving productivity and contributing to the success of the company.
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