A company's direction and control are guided by a set of rules, procedures, and processes known as corporate governance.
Corporate governance allows businesses to have logical decision-making processes so that all interests in the company are balanced fairly.
The major management processes that support corporate governance are people, process, performance, and purpose.
The basic principles of corporate governance are transparency, fairness, responsibility, and accountability
Corporate governance documents are guiding principles of a company to direct all of its operations, including but not limited to compensation, risk management, unfair practices, impact on the climate, etc. All of this is done with the intent to balance the interests of a company's stakeholders, such as shareholders, senior management executives, customers, suppliers, financiers, the government, and the community.
Governance at a corporate level includes the processes through which a company’s objectives are set and pursued in the context of the social, regulatory and market environment. It is concerned with practices and procedures for trying to make sure that a company is run in such a way that it achieves its objectives, while ensuring that stakeholders can have confidence that their trust in that company is well grounded.
Most companies strive to have a high level of corporate governance. For many shareholders, it is not enough for a company to merely be profitable; it also needs to demonstrate good corporate citizenship through environmental awareness, ethical behavior, and sound corporate governance practices.
"Virtuous" corporate governance creates a transparent set of rules and controls in which shareholders, directors, and officers have aligned incentives.
As an investor, you want to ensure that the company you are looking to buy shares of - practices great corporate governance practices.
A strong corporate governance ensures a company will make ethical decisions that benefit all of its stakeholders, making the business a good option to investors when financials are also in line.
Thus, the purpose of corporate governance is to facilitate effective, entrepreneurial management that can deliver the long-term success of the company.
Having a good corporate governance system in a business can lead to many positive results, such as maintaining the confidence of investors, delivering long-term growth, increasing the price of shares, improving control over the company, minimizing corruption, decreasing wastes, making company more efficient, and creating a good brand reputation.