corporate governance

economic-dictionary

Corporate governance is a set of rules, systems, processes and practices that are applied to control and direct the operation of a company.

To begin with, in corporate governance a series of regulations have to be established. These regulations give an order mainly the relationships that are established between the top management, the board of directors and the shareholders of a company. In addition, they regulate the relationships between the company and the interest groups that support the operation of the organization.

Most importantly, corporate governance standards help to strengthen the ethical position of the company and to apply best corporate practices.

Structure of corporate governance

The structure of corporate governance can vary from one company to another, in general it is structured as follows:

investors Assembly

Above all, the shareholders' meeting is made up of people or entities that have their capital invested in the company. For this reason, they analyze and evaluate the returns and risks of the investments made by the company.

In other words, the shareholders' meeting is the highest body in the control and decision of investments. Since its main purpose is to protect the interests of shareholders.

Board of Directors or Board of Directors

For its part, the board of directors is made up of the owners, investors and external directors of the company. Its main function is to determine the strategies to be followed. In addition, it is in charge of supervising the actions of the organization's steering group to achieve the proposed objectives.

It should be noted that in order to achieve the objectives it is recommended to rely on committees. Like a finance committee, an evaluation and compensation committee, an audit committee, and a strategic planning committee. The audit committee must have an internal and an external auditor.

Above all, the board of directors must submit an annual report to the shareholders' meeting, and it must detail the work that has been carried out by the company's committees or intermediate bodies.

General management or senior management

Similarly, the general management is in charge of carrying out administrative tasks and is responsible for the correct application of the company's internal control system. It is made up of a management group, that is, people who occupy the highest positions within a company. It can be positions such as president and vice president, manager and assistant manager, directors and deputy directors.

Ultimately, these are those in charge of the general management of the entire company or of the departments or subdivisions that comprise it. For this reason, they must establish the objectives of the organization, promote effective communication, motivate workers and foster a business culture.

corporate governance
structure

What are the stakeholders of a company

Clients, suppliers, creditors and any other group that helps the company perform efficiently are usually considered as interest groups for a company.

Since the support of these groups is essential to achieve the sustainability of the company in the long term. Corporate governance regulates these relationships between the company and stakeholders, so that an adequate benefit is achieved both for the company and for stakeholders.

Principles of corporate governance

The basic principles on which corporate governance is based are:

1. Responsibility

Obviously, corporate governance allows all shareholders to be clearly identified and the responsibilities that each one assumes. What makes the entire business structure in general work with a greater degree of responsibility.

2. Independence

In addition, corporate governance ensures that the decisions and actions taken by each member of the organization are carried out impartially, objectively and totally independent of the opinion or judgment of any other member of the board. What makes actions and decisions are not affected by corruption processes.

3. Transparency

Generally, the way in which corporate governance operates requires that its members prepare and present their reports in a timely manner and with accurate data that reflect the real situation of the company. Above all, when it comes to financial information, since managers are responsible for informing shareholders about how the company's resources are being used and where they are being obtained.

4. Equality

It is reasonable to understand that corporate governance encourages and promotes equal rights for each of the shareholders who risk their capital within the company. These rights are associated with the fact that every shareholder must be informed of what happens in the day-to-day of the company.

corporate governance
beginning

What benefits are obtained from the application of corporate governance

The benefits obtained by applying good corporate governance practices are:

  • It promotes trust among investors or shareholders: Because the risk that administrators or majority partners will act inappropriately is reduced. Both in ordinary and extraordinary situations in the performance of the company.
  • The relationship of all investors is improved: Since there is information that is timely and sufficient to know the situation of the company.
  • Strengthens the decision-making process and control of the company: This makes the company more productive and competitive.

Finally, we can say that every company can benefit from the use of corporate governance, because it helps the company to function better and that decision-making is carried out in a more agile and adequate way. Also, it allows the administrative process to be carried out more effectively.

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