Although Corporate Governance Codes that were released by many countries towards the end of the twentieth century and into the 21 st century was only a mechanism to check on the boards of directors and top management in running corporations, just imagine, what would be the situation of the corporate world without all these Codes? As I mentioned in my earlier posting, Enron, the largest corporation that collapsed at the beginning of this century, took into consideration all the best practices of good corporate governance. Yet, corporate governance best practices could not dig up and traced the corporate scandal until it was too late.
Nonetheless, just imagine if there were no governance codes at all. I am optimistic that a lot more corporate scandals and wrongdoings might have incurred in all these years. In Malaysia, the Asian Financial Crisis was a wake-up call for the country to study and eventually released its Corporate Governance Codes in year 2000. Even when the code was already in place, many corporations in Malaysia involved in activities that are contrary to the spirit of good governance practices.
Good ethical behaviors of corporate players are the main factor for corporate governance to have good impact on firm performance. These ethical behaviors would eventually reflect itself in their Annual Reports and Financial Statements. In turn, companies that performed well and provide good returns to shareholders are able to attract potential shareholders to invest in listed companies. This will eventually create a better capital marketplace for investors be they retail players, institutional investors or foreign investors to enter the capital market.
There are many advantages of good practices of corporate governance.
First, there will be an increased access to external financing by firms. This in turn can lead to larger investment, higher growth, and greater employment creation.
Secondly, good corporate governance is able to lower the cost of capital and associated higher firm valuation. This makes more investments attractive to investors, also leading to growth and more employment.
Third, there will be better operational performance through better allocation of resources and better management. This creates wealth more generally.
Fourth, good corporate governance can be associated with a reduced risk of financial crises. This is particularly important, as financial crises can have large economic and social costs.
Fifth, good corporate governance can mean generally better relationships with all stakeholders. This helps improve social and labor relationships and aspects such as environmental protection.
All these advantages matter for growth, employment, poverty, and well-being of corporations and countries.
No comments:
Post a Comment