To understand the essence of corporate governance, it is necessary to clearly understand what a corporation is, what are its characteristic features and characteristics. This article will reveal all basic aspects of corporate structure and management.
The essence of corporate governance
A corporate governance system with a transition market economy is extremely important. There is a growing awareness around the world that strong corporate governance is a key prerequisite for sustainable growth and access to international capital markets.
Speaking about corporate governance levels, it should be understood that there are many interested parties (so-called stakeholders) around the corporation. These include equity holders, corporate management, employees, suppliers and consumers, government agencies, and even the local community. All of them are interested in the activities of the corporation, and their interests should be taken into account in the framework of decision-making at the highest level of the hierarchy of corporate structures.
Corporate activities are carried out through a management system that is designed to reconcile the interests of shareholders and monitor the achievement of corporate goals. This process requires the purposeful cooperation of governing bodies and joint implementation of corporate policy. The main task of corporate governance is to establish a balance of interests of various groups of stakeholders. It is believed that the corporate governance system consists of several elements, the main of which are:
- rights of shareholders,
- governing bodies of the corporation,
- information disclosure;
- social responsibility of business.
In a broad sense, corporate governance is seen as a system through which to direct and control the activities of the company. Within the framework of corporate governance, it is determined how investors exercise control over the activities of managers, as well as what responsibility managers have to investors for the results of the company’s activities. Corporate governance is a system of relationships between owners and executive bodies of a company to manage its activities. The subjects of corporate relations are: issuers – usually joint-stock companies, shareholders, corporate enterprise managers, the state in the person of public authorities and local governments, creditors, etc.
What are the types of multi-level governance?
So, a corporation is a complex multi-stage formation that requires an effective management. In total, it is customary to distinguish three basic levels of corporation governance:
- strategic. The highest level of management is determined by strategic planning and control. It is focused on the activities of the corporate culture as a whole, and is based on the development strategy of the corporation;
- The middle level is represented by management activities aimed at transferring the objectives of senior management and coordinating the activities of departments to achieve them;
- operational. The lower level is associated with operational management aimed at solving specific problems. Grassroots and middle levels are associated with corporate management.
The highest level is correlated with corporate governance. Corporate management is at a lower hierarchical level than corporate governance. Its main task is business management, while corporate governance is aimed at establishing mechanisms that ensure accountability and balance of interests of all participants in corporate relations. The point of contact between them is the development strategy of the corporation.
The introduction and implementation of corporate governance principles make it easier for corporations to access the market, contribute to an increase in the value of their assets, a decrease in the cost of capital and risks. Improving its level is one of the most important factors in the development of the country’s national economy.