Relevance of corporate governance

Well, I’m not sure there is much difference between ‘relevance’ and ‘importance’. Q4 December 2011 exam asked about the importance of corporate governance. Here is the official answer:

Corporate governance is the system by which companies are directed and controlled. According to the UK Corporate Governance Code the ‘purpose of corporate governance is to facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of the company’.

Corporate governance considers the responsibilities of directors, how the board of directors should be run and structured, the need for good internal controls and the relationship with external auditors.

It is important for companies to consider good corporate governance principles as often it is management or those charged with governance who run the company, but the owners are the shareholders and they are not involved in the running of the business. For these shareholders their only opportunity to raise concerns is at the annual general meeting, which only occurs once a
year and often attendance is low.

Shareholders need to ensure that their needs are taken into account by management, and that there is a process in place for them to be informed as to how the business is operating.