Importance Behind Corporate Governance For Business Finance Essay - Free Essay Example

1.1 Introduction of Corporate Governance. Corporate governance had defined by Cadbury Committee(1992) as the systems by which companies are directed and controlled. It is concerns the relationships among the management, Board, shareholders and other stakeholders. Hence, it is about the way or how the boards oversee the operation of a company by its manager, and the accountability of the board members to the shareholders and company. Good corporate governance plays essential role in underpinning the integrity and efficiency of financial market, and enhances the reputation of the company. 1.2 The Important of Corporate Governance 1.2.1 Key Element to Attract Investors and Enhance Their Confidence Investor Relation (IR) plays an important role in attracting investor confidence and good governance in Malaysian companies  [3]  . Better corporate governance provides investors a timely dissemination of reliable, full and accurate information relates to the company. If OneFamily Berhad has promoted the open disclosure policies, they are able to attract more investors and enhance their confidence in investing in their expansion plans  [4]  . So, the business will have support from its investors and will be more sustainable. 1.2.2 Easy to Raise Capital Good corporate governance can raise capital more easily and cheaply in the market where capital is a scarce resource. Since the board is going for listing, they need a high cost of planning and launching an Initial Public Offering (IPO). The process is tedious and need to comply with regulatory requirement. Hence, the process may involve many parties and some of the cost may incur  [1]  . Besides that, OneFamily Berhad also needs capital to fund the expansion plans. If the company adopts good corporate governance, they are able to raise fund easily from the investors. 1.2.3 Prevent Corporate Scandals Much country emphasis on corporate governance is because of the high-profile corporate scandals  [2]  , globalization and increased investor activism. Financial malpractice such as nontransparent of financial statement and gross mismanagement may cause the corporate scandal. Good governance promotes open disclosure policies, timely dissemination of reliable, full and accurate information to all players and accountability. If OneFamily Berhad adopts good corporate governance, they can prevent from the corporate scandals through transparency of financial statement and open disclosure policies and to increase their reputation. 1.2.4 Long Term Sustainability Corporate governance contributes to sustainable economic development of the company. It can be done by enhances the company performance and increase their access to capital outside the company. Well governed company usually outperform other companies and is accountable and transparency to its shareholders and other stakeholders. So, basically they are more sustainable compared to weak corporate governance company. Improve in internal control system will ensure the quality decision making of company. Since OneFamily Berhad decided to diversify their business in other industry, what they need is the long term sustainability of the business and to gain competitive among their investors. 1.2.5 Protect Shareholder Right Corporate governance protects the right of shareholder by enhance disclosure and transparency. It addresses the agency problem throughout a combine of company law, stock exchange listing rules and self-regulatory codes. Since OneFamily Berhad going to be listed in Bursa Malaysia, the director needs to act bona fide and accountable for the success of company and maximizing shareholders wealth as director has owed their duty to company and shareholder. Better corporate governance ensures that shareholders are sufficiently informed on decision concerning fundamental issue. Hence, shareholder right can be protected by transparency of the financial statement and timely and accurate disclosure of information. 1.2.6 Build Reputation and Brand Image Good reputation enhances profitability of the company because it attracts customers to products, investors to securities and employees to its jobs. Besides, company behave ethically and governed in a good manner builds a reputational capital which is competitive advantage. If OneFamily Berhad adopt a good corporate governance, they are able to increase their reputation and brand image of the company. Hence, they able to attract more expertise (employee) work for them in the monkey-breeding farm and animal testing laboratory. On the other hand, good corporate governance also helps them to attract local and foreign pharmaceutical (customer) and public (investor) to fund in the business.