What is Corporate Governance?
The system through which powers are exercised and shared by different stakeholders and groups to ensure the achievement of the entity’s goals. The corporate entity’s conscious, deliberate, and sustained efforts to strike a judicious balance between its interests and those of various constituencies of its operating environment. All efforts to enhance the accountability of board members to shareholders and ethical efforts and fair play to achieve corporate success. It is a system by which companies or entities are directed and controlled to achieve their goals.
Example of Corporate Governance
Corporate Governance plays a significant role in the sustainability of an organisation. We have seen the failure of Corporate Governance leading to Bankruptcies. One such example was Enron. In 1985 merger of Inter North and Houston Natural Gas resulted in Enron; a wave of deregulation moved Enron into a gas broker. The company would purchase gas from various vendors and sell it to a network of customers at predetermined prices.
Enron created a new market for energy derivatives to cover its risk exposure to gas prices. As a result, Fortune magazine named Enron “America’s Most Innovative Company” from 1995 to 2000. At the end of 2000, nearly $101 billion in recorded revenue.
By December 2001, it became the largest bankruptcy in U.S. history due to massive corporate governance failures.