Since corporate governance can be highly influential for firm performance, firms must know what the corporate governance principles are and how it will improve strategy to apply these principles. In practice there are four principles of good corporate governance, which are:
• Transparency
• Accountability
• Responsibility
• Fairness
All these principles are related with the firm’s corporate social responsibility. Corporate governance principles therefore are important for a firm but the real issue is concerned with what corporate governance actually is.
Management can be interpreted as managing a firm for the purpose of creating and maintaining value for shareholders. Corporate governance procedures determine every aspect of the role for management of the firm and try to keep in balance and to develop control mechanisms in order to increase both shareholder value and the satisfaction of other stakeholders. In other words corporate governance is concerned with creating a balance between the economic and social goals of a company including such aspects as the efficient use of resources, accountability in the use of its power, and the behavior of the corporation in its social environment.
A good corporate governance should address all these main points:
• Creating sustainable value
• Ways of achieving the firm’s goals
• Increasing shareholders’ satisfaction
• Efficient and effective management
• Increasing credibility
• Ensuring efficient risk management
• Providing an early warning system against all risk
• Ensuring a responsive and accountable corporation
• Describing the role of a firm’s units
• Developing control and internal auditing
• Keeping a balance between economic and social benefit
• Ensuring efficient use of resources
• Controlling performance
• Distributing responsibility fairly
• Producing all necessary information for stakeholders
• Keeping the board independent from management
• Facilitating sustainable performance
As can be seen, all of these issues have many ramifications and ensuring their compliance must be thought of as a long term procedure. However firms naturally expect some tangible benefit from good governance. So good governance offers some long term benefit for firms, such as:
• Increasing the firm’s market value
• Increasing the firm’s rating
• Increasing competitive power
• Attracting new investors, shareholders and more equity
• More or higher credibility
• Enhancing flexible borrowing condition/facilities from financial institutions
• Decreasing credit interest rate and cost of capital
• New investment opportunities
• Attracting better personnel / employees
• Reaching new markets
Although corporate governance is primarily considered to be concerned with how a firm conducts itself in relationship to its investors, increasingly it is being extended to a consideration of how it conducts itself in relation to all of its stakeholders. This is a part of the current concern for greater accountability. Thus governance is increasingly being considered to be related to CSR and the concerns of the two are merging.