The concept and basic principles of corporate governance

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The concept and basic principles of corporate governance
The concept and basic principles of corporate governance
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The functioning of the company depends not only on the chosen strategy, but also on the availability of resources and markets for products. At the same time, the success of business development is not conceivable without access to investment capital. It is quite justified that investors do not plan to invest their finances where there are no effective management and audit levers, called corporate ones. Therefore, it is important to understand what it is.

This article presents the concept and basic principles of corporate governance in modern companies. This term is understood as a complex process in which one person cannot perform all managerial roles at the same time. There must be several such people. They have their own specific responsibilities. To regulate the relationship between these people, the principles of corporate governance are being created in order to increase the effectiveness of management.

Essence

In the broadest sense, corporate governance is the principles and norms relating to the generally accepted management of an organization.

Under corporatemanagement can also be understood as initiatives, development and implementation of rules (principles) of best management practices in private and public sector organizations.

The concept of corporate governance refers to a specific organization (in particular, to a company) and includes individual rules for management and control, as well as the relationship between the founders (including shareholders) in terms of participation in this organization.

Broadly speaking, corporate governance refers to the processes by which organizations are guided, regulated and accounted for.

The following definitions are popular:

  • is the system by which companies are managed and controlled;
  • corporate governance defines practices that provide providers of capital to companies with confidence in investment returns.
corporate governance principles

Different from normal control

Corporate governance is often identified with company management. These concepts are different. Company management is the activity of managers and managers involved in the current work and the implementation of the intended goals.

Corporate governance is a broader concept. It represents the initial cooperation of stakeholders in all aspects of the company's work. Its purpose is to create mechanisms that ensure the solidarity of interests of all those involved in corporate relations. This is a higher, even a kind of political level than the daily management. The two concepts intersectmainly in the field of company development tactics, since this issue is directly related to the work of the top management of the corporation. This is important.

OECD Corporate Governance Principles

They represent a set of requirements for the institutional, legal and regulatory aspects of the activities of the governing bodies of companies, as well as practical recommendations for their application.

These principles define the corporate management system as a division of rights and obligations between all components of the company's corporate structure: the board, management positions, shareholders and other persons. The same principles define the rules and procedures for decision-making in management. Due to the principles of corporate governance, the system of goals and objectives of the company is formed as a whole. The means of implementing the planned plans are also determined, the results are monitored and controlled.

Among the main principles of corporate governance of the OECD stand out:

  • Governance structure - is obliged to protect the existing rights of shareholders and founders. It must ensure equally equal treatment of shareholders. Each of them must be protected and have the right to effectively defend their interests in case of their violation.
  • The legal framework should recognize the rights of stakeholders under the law, encourage active cooperation between corporations and stakeholders in creating jobs and we alth, ensuring financial sustainability.
  • The information structure should provide disclosure of data on all important and significant issuesregarding the corporation: financial indicators, performance results, management fundamentals.
  • The controlling structure should ensure the strategic management of the company, oversight of management, accountability to shareholders.
OECD corporate governance principles

Organization

The main principles of corporate governance are more clearly presented in the table below. So it will be more convenient for you to understand.

Principle

Characteristic

Forming the foundation for an effective management structure

The formed structure should promote the market, comply with legal requirements

Respect for shareholder rights

Introduced a set of rights: security of shareholding, full disclosure, voting rights, management rights and more

Equal treatment of shareholders

Protecting shareholders' rights by approving systems that allow them to benefit from their powers

Stakeholder Role Consideration

There is a certain circle of other persons, besides shareholders, who are interested in information. These include: banks, bondholders, corporate employees

Disclosure and transparency of information

Accuracy and disclosure on all matterscorporate: finance, performance, governance

Duties of the Board of Directors

Include: strategic management, effective control, accountability

basic principles of corporate governance

Code: concept, characteristic

The Corporate Governance Code (CCG) is usually understood as a set of norms and standards voluntarily adopted by corporate associations that establish and regulate the process of corporate communications.

CCU is a set of general principles and advice on the implementation of the relations under study. Such corporate governance codes and the principles that underlie them can be developed at two levels: the country as a whole, at the level of one company.

In the first case, they are of a state nature, and in the second they act as a local legislative act.

The TCCs themselves are not mandatory and are in the format of recommendations. But some information about compliance with the provisions set out in them may be included in the mandatory disclosure requirements in the annual report of companies.

principles of corporate finance management

English codes

Corporate governance issues and principles that are determined by business practice are commonly referred to as professional self-regulation. The responsibility for their formation and development lies with the local business level.

More popular development of England in the field of corporate governanceshown in the table below.

Reports

Combined Code

Cadbury

Principles of Progressive Management

Greenbury

Code of Best Practice

Hampel

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The Cadbury Report (1992) aims to increase the reliability and quality of the data and information that companies provide to shareholders and other interested groups.

The Greenbury Report (1995) addresses issues that have been related to corporate executive compensation.

Hampel's (1998) report focuses on the positive changes that can result from an increase in the productivity of a company's corporate management system. Attention is paid to the organization of annual meetings of shareholders, the work of managers, their remuneration and relations with shareholders.

In addition, audit issues (internal and external) are considered.

The United Code of England was floated in 1998 by the English Stock Exchange. Its implementation has become a mandatory requirement for those companies whose shares were listed on the stock exchange. The main corporate governance principles covered by this document were:

  • organization and activities of the board of directors;
  • relations with owners and investors;
  • revision, reporting and audit.
corporate governance principles

German Code of Government

This country has developed its own CCG. It contains a number of conditions that must be observed for all municipal companies. His main concern was the desire to provide certainty and transparency of the state system, as one of the tools that ensure the growth of stakeholder confidence in corporations.

He emphasizes the need to maintain a two-tier structure of supreme bodies, which should include a board of directors and a supervisory board.

Part of the Code deals specifically with these elements, as well as issues that relate to the organization and nature of cooperation between corporations and their shareholders.

Russian Code

In Russia, the practice and basic principles of corporate governance are still in their infancy. At the state level, two points can be distinguished:

  • Code 2001;
  • Code 2014.

They were first prepared under the authority of the Federal Securities Commission in 2001. Thirteen years later, in 2014, the Central Bank of the Russian Federation issued a new Code that practically replaced the previous one. It reflects provisions on shareholder rights, role of boards of directors, remuneration policy.

To a large extent, it corresponds to the concept and principles of corporate governance of the OECD. It takes into account arbitrage experience.

According to this Russian Code, corporate governance principles include:

  • equality of all shareholders and the formation of criteria in order to exercise their rights;
  • building a productive Board of Directors;
  • building remuneration systems for members of management bodies and chief executives of corporate structures;
  • creation of control procedures, risk management systems;
  • ensure the highest degree of disclosure of significant information about the company and organizations under its control, as well as their internal policies;
  • important corporate events.
basic principles of corporate finance management

Path to the result

The following principles of effective corporate finance management can be distinguished:

  • transparency;
  • disclosure of monetary and other information about the work of the company;
  • existence of internal control over the activities of managers;
  • protecting the rights and interests of all shareholders;
  • developing company tactics.

The importance of corporate management can be assessed from various points of view. Well-managed companies achieve great results in the long run, it is easier for them to access capital. The highest management standards reduce investment risks. This is due to the presence of highly paid highly qualified managers in such corporations.

For the investor, this is a prerequisite for providing capital at a lower cost. Companies with established corporate governance provide increased resources forshareholders, employees and the state as a whole. They also contribute to economic growth. Let's note the main principles of effective management of corporate finances that contribute to the productivity of the system:

  1. The presence of correctly defined strategic guidelines. Innovations in production, marketing, resource management should be driven by the desire to overtake rivals and prevent the loss of market positions. At the same time, it is important to constantly ensure that the financial effect of innovations exceeds the costs of their implementation.
  2. Minimization of management costs. In a situation where management costs are higher than a positive result, the question of restructuring the entire management system or some of its links should be raised.
  3. Improve internal structure.
  4. Institutional nuances. Development of a regulatory framework. This factor relates to the area of ​​the state. For the progress of financial systems that meet interstate standards, it is necessary to create technological and financial institutions that would take into account the world and Russian experience in commercial activities. A policy of innovation is also needed.
concept and principles of corporate governance

Key principles of corporate finance management

They are as follows:

  1. Increasing the efficiency of the company. Corporate management creates more optimal business processes, ensures strict accountability of managers at various levels, reduces risks, reduces seriouscosts. Building an accurate corporate management system helps prevent expensive litigation in court that arises between the participants in relations due to a mismatch of interests, corruption, unclear transactions, and so on.
  2. Simplifying access to capital markets. Companies with successful management experience inspire more confidence among investors. Here, transparency is also fundamental: having data on the company's work, financiers have the opportunity to assess the prospects and dangers. This increases loy alty even if open data is negative, as uncertainty is drastically reduced. The amount of attracted investments and capitalization are specific indicators of the company's financial performance.
  3. Reducing the cost of raising capital, increasing the price of the company's assets. Successful corporate management not only helps to increase investment activity, but also allows you to receive borrowed capital on more profitable terms (lower interest rates, longer repayment periods, etc.).

In sum, corporate governance makes the principles of openness, transparency and integrity of the company mandatory elements. They can be summarized as shown in the table below.

Principle

Characteristic

Self-regulation

Independence in decision-making

Self-sufficiency

The ability of the company to operate profitably

Self-financed

Not only effective operation, but also positive growth forecasts

Making profit

Income that exceeds the interest rate of a bank deposit

Liability

Having a commitment system

Building financial reserves

To ensure stable performance

Control and audit

Cost monitoring, performance evaluation

The principles of corporate finance management are the key elements of the studied system as a whole, which are constantly evolving and changing depending on the external environment.

basic principles of effective corporate finance management

Problems of application in Russia

The basic principles of corporate finance management in Russia have a number of problematic aspects of their application and implementation. Among them:

  • ownership and management combined in one person;
  • mechanisms to control companies are weakened;
  • low transparency of the company's operations, difficulty in disclosing information;
  • use of illegal methods of work.

More transparency is unprofitable for almost all companies, as it leaves them vulnerable to regulators and security forces. An advanced system of corruption keeps shareholders at risk of losing their property through interferencecivil servants. There is a big difference between the standard of living of we althy citizens and people with low incomes, as a result of this, the difference in values ​​and attitudes towards the goals of the company.

Another acute problem is the lack of experienced managers and managers. In practice, the management of the company is often carried out by the owners of the shares, who can act virtually uncontrollably, make transactions in their own personal interests, reduce the amount of work with subordinates.

Based on the above, we can conclude that there is still no perfect model of corporate governance principles in general, and in the Russian Federation in particular. However, there is a tendency to strengthen this system and the understanding of its significance in society. Of course, the development of corporate governance is based on international experience. Its final strengthening requires the participation of executive and regulatory bodies, the judicial and tax systems, as well as companies interested in the existence of the Russian model. The proper application of the OECD principles covers the scope of corporate governance in Russia with the aim of improving it and bringing it to the level of a global scale.

principles of effective corporate finance management

Conclusion

The modern market is an investment market. Without such resources, no organization can develop. Not so long ago, a potential investor was only interested in the current financial situation in the company in which he plans to invest. Now the situation is quite different. The key role is assigned to the assessmentcorporate governance, the productivity of which directly affects the well-being of the company in the long term. Most financiers are willing to pay for the securities of an organization in which corporate governance is implemented and operates effectively. Even if the current monetary characteristics are inferior to competitors.

The process should be based on the key principles of corporate governance. Whether they are the result of collective work or the merit of individual managers depends on the built management system.

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