Discuss How Observance Of Good Corporate Governance And Avoidance Of Corrupt Practices In An Institution Can Contribute To An Effective Organization

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SIN: 09188389
CODE: BS 450
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The management of the company hence assumes the role of a trustee for all the others.

The Banking and Financial Services (Corporate Governance) Guidelines, (2006, pg. 4) defines corporate governance as the process and structure used to direct and manage the business and affairs of an institution with the objective of ensuring its safety and soundness and enhancing shareholder value. In order to be effectively and ethically governed, businesses need not only good internal governance, but must operate in in a sound institutional environment.

The King Report on Corporate Governance for South Africa identified seven primary characteristics of good governance:

• Discipline - commitment by the organisation’s senior management to widely accepted standards of correct and proper behaviour
• Transparency - the ease with which an outsider can meaningfully analyse the organisation’s actions and performance
• Independence - the extent to which conflicts of interest are avoided, such that the organisation’s best interests prevail at all times
• Accountability - addressing shareholders’ rights to receive, and if necessary query, information relating to the stewardship of the organisation’s assets and its performance
• Responsibility - acceptance of all consequences of the organisation’s behaviour and actions, including a commitment to improvement where required
• Fairness - acknowledgement of, respect for and balance between the rights and interests of the organisation’s various stakeholders
• Social responsibility - the organisation’s demonstrable commitment to ethical standards and its appreciation of the social, environmental and economic impact of its activities on the communities in which it operates.

The presence of strong governance standards provides better access to capital and aids in economic growth. It insures that the business environment is fair and transparent to both shareholders and stakeholders, and that companies can be held accountable for their actions. Conversely, weak corporate governance leads to waste, mismanagement and corruption.

Vishny (1997), states that, there are at least three reasons for, an organization to show greater interest to implement corporate governance principles which would in turn lead to its effectiveness:

1. The good governance practices pave the way to companies to grow or attract additional investors as alternative to raising capital through borrowing from banks at high cost. Additionally, companies may consider going public through the initial public offering IPO.
2. Sound governance practices lead to improved internal control systems which results in more accountability and higher profitability. The latter is attributed to enhanced controls which minimize the likelihood for fraud losses.
3. Corporate governance framework ensures that shareholders are freed from executive and administrative duties. As a result, conflicts among business owners who assume management roles in the...

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