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Chapter 13 4

Corporate governance

2.1 Importance of corporate governance

Corporate governance is the system of rules, practices and processes
by which a company is directed and controlled.

The aim of corporate governance is to ensure that companies are
managed effectively for the benefits of their shareholders, employees,
and other key stakeholders such as the wider community.

A company following good corporate governance principles should be less exposed
to risk of directors abusing their powers.

Corporate governance pronouncements tend to respond to corporate scandals that
arise because unscrupulous management has:

 manipulated the share price for personal gain

 disguised poor results/mismanagement

 extracted funds from the company

 raised finance fraudulently.

Advantages of following good corporate governance principles:

 Greater transparency

 Greater accountability

 Efficiency of operations

 Better able to respond to risks

 Less likely to be mismanaged

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