Corporate Governance
By Syeda Sana
What is your idea of a strong relationship? Is this about honesty, trust, sincerity, fairness or faith? Or is it about being accountable, loyal and no hypocrisy?
Of course, any relationship must be based on these pillars in order to make it a lasting one. Keeping this initiative in mind, it would be far easier to understand what you mean by corporate governance.
Our religious roots depict the strong examples of these basic values of human conception. Prophet Muhammad (peace be upon him) never talked of any false thing. He was the warmest among the people on welcoming his visitors and kindest in conduct while talking to or dealing with others (Sincerity). Saidina Abu Bakar Al-Siddiq r.a was as sincere as he was firm in faith. He lived up to every word of what he said at the beginning of his Caliphate. He was never anything but the faithful agent of Allah and His Messenger, and the humblest servant of his people (Faith).
Saidina Omar Bin Khattab r.a’s acceptance of Islam had made a big difference for Islam and Muslims. He stood by the side of the Holy Prophet (peace be upon him) in all battles and expeditions. He has great love for Allah and His Messenger. He never allowed any blood ties or friendship to stand in the way of this love. Saidina Omar Bin Khattab r.a became a great pillar of strength for Islam. He showed unusual courage and he was thorough in everything he undertook (Loyalty).All these paradigms in a very simple way tell us how significant is to maintain such qualities whether in any form or aspect of one’s life.
The most conventional response to the question about the purpose of an organization is to generate the best possible outcome and maximum profitability. To put this idea as the purpose of any organisation is of course to engage it in a form of caricature. Everything in life is not simple. There are wrinkle between theories and the practices we perform.
I believe organizations are like individuals. Just like us, they have social responsibilities that a company has to maintain a level of good standing with investors and consumers by avoiding doing anything likely to harm in the eyes of these groups as we do to our maintain our integrity in respective societies.
It is important here to define what is meant by corporate governance. There are many definitions of Corporate Governance. The classical view is that its main purpose is to define relationship between those who own the capital and those who control it. The process and structure used to direct and manage business and affairs of the company towards enhancing business prosperity and corporate accountability with the ultimate objective of realizing long term shareholder value, at the same time taking into account the interest of other stakeholders. The end purpose of Corporate Governance must be to maximize company’s value. Unfortunately for far too long this value has been determined only by the financial value. It has now been realized that the financial value depicts merely a small percentage of the total value. The value of human capital and natural capital is infinitely more than the value of financial capital.
Corporate governance’s basic emphasize is on the accountability factor of an organization. It is to ensure the credibility of certain individuals in an organisation by undergoing certain processes with a strong concern for its shareholders benefit. What impact it has on any organisation can be in the form of strong economic stability. Good corporate governance is an integral part of economic health and sustainability of a nation. But how to make an effective corporate governance stature in an organisation is the concern of every top level manager.
Principles for corporate governance are accountability, transparency, fairness and responsibility. These are the pillars of any organization’s reliability and principled values. Good corporate governance can make huge differences in the business market and yield long term benefits. More equity participation from Government agencies attracts more individual investors for long term investments. More institutional investors are attracted to invest, higher sustainable market capitalization, more economic activity, risks minimized over long term; capital market reacts positively and becomes more dynamic.
However, the general belief in today’s business world is that markets disintegrate because of the lack of investor’s confidence due to accounting frauds. The fact is the corporations are in a chaos now not because of accounting frauds but the management failures. There should be learning for the failures of great corporate giants.
Corporations must shift their paradigms. Governance needs to ensure that the corporations take in to account the welfare of all constituencies in which they operate. A business enterprise’s mutual actions must be friendly with long term societal needs. It has been gradually more established that the ultimate competitiveness and corporate success is dependent as much on investors, employees, customers, creditors and suppliers as on shareholders. Good corporate governance requires corporations to administer company’s wider influences on society for the benefit of the company and society as a whole.
Corporate governance is way beyond discovery and fulfillment. The eventual prosperity foundation will come only from performance. Our competitive position in the world will be determined by the effectiveness with which we govern the corporation to create value for itself and its people.