Page 170 - DMGT401Business Environment

Unit 7: Socio-cultural Environment

challenge management performance. It needs to be of sufficient size and have an Notes
appropriate level of commitment to fulfill its responsibilities and duties. There are issues
about the appropriate mix of executive and non-executive directors.
4. Integrity and ethical behaviour: Organisations should develop a code of conduct for their
directors and executives that promotes ethical and responsible decision-making.
5. Disclosure and transparency: Organisations should clarify the role of the board and the
management and the same be conveyed to the public. They should also implement
procedures to independently verify and safeguard the integrity of the company's financial
reporting. Disclosure of material matters concerning the organisation should be timely
and balanced to ensure that all investors have access to clear, factual information.
Transparency is the best principle of corporate governance.

7.6.3 Role of Corporate Governance

The role of effective corporate governance is of immense significance to the society as a whole.
It can be summarised as follows:
1. Corporate governance ensures the efficient use of resources.
2. It makes the resources flow to those sectors or entities where there is efficient production
of goods and services and the return is adequate enough to satisfy the demands of
stakeholders.

3. It provides for choosing the best managers to administer scarce resources.
4. It helps managers remain focused on improving performance and making sure that they
are replaced when they fail to do so.
5. It pressurises the organization to comply with the laws, regulations and expectations of
society.

6. It assists the supervisor in regulating the entire economic sector without partiality and
nepotism.
7. It increases the shareholders' value, which attracts more investors. Thus, corporate
governance ensures easy access to capital.
8. As corporate governance leads to higher consumer satisfaction, it helps in increasing
market share and sales. It also reduces advertising and promotion costs.
9. Employees are more satisfied in organizations that follow corporate governance policies.
This reduces the employee turnover, which results in the reduction in the cost of human
resource management. Only a satisfied employee can create a satisfied customer.
10. Corporate governance reduces the procurement and inventory cost. It helps in maintaining
a good rapport with suppliers, which results in better and more economical inventory
management system.
11. Corporate governance helps in establishing good rapport with distributors providing not
only better access to the market, but also reducing the cost of production.

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