Why Good Corporate Governance Matters

January 4, 2021

Often, when looking for an investment opportunity, we all want to uncover a piece of information that indicates why a company could see huge growth in the future. It is often imagined that that piece of information is a new innovation at a company, opening up a new business somewhere or something similar. What we often overlook, at first, is starting to research companies based on good corporate governance. Indeed, while uncovering new pieces of information sounds exciting, determining how good a company’s corporate governance is sounds a little dry. However, good corporate governance is often fundamental to a company’s success. Here, in this article, we discuss why. 

What is corporate governance?

Firstly, what exactly is corporate governance? Corporate governance is an idea that can touch all aspects of a company. Broadly speaking, it is a framework that offers guidance to a company about how it should act and operate. It informs management about how it should do business and what is acceptable or not acceptable while doing business on behalf of the firm. 

What makes good corporate governance

It’s all well and good knowing what corporate governance is, but it is imperative to understand what makes good corporate governance. Without knowing what makes it good, it is difficult to identify companies that display it. Simply put, good corporate governance is when a firm has a culture of accountability and responsibility - in all that it does. It means that it does not take any unnecessary risky action and nor does it partake in corrupt activities. Good corporate governance will promote ethical and sustainable ways of working, while having robust procedures in place to unearth any fraudulent or illegal acts within the company. In fact, good corporate governance guidelines will ensure that such acts are never even close to becoming part of the business. 

Why is good corporate governance important?

Good corporate governance is important to identify within a firm as a key factor for investing as companies with good corporate governance are historically far more successful. Companies with good corporate governance also have the right processes in place to grow at a pace that is sustainable and manageable. By not only staying within the letter of the law, but also having to comply with a company’s code of ethics, good corporate governance promotes and encourages healthy ways of working, which then results in a successful company. The company is likely to be able to survive even the biggest headwinds as a result - having had to steer clear of ruthless methods of working and risky opportunities. 

Corporate governance - key takeaways

Corporate governance should always come into consideration when looking at a potential investment. The vulnerability of your investment, if the company does not have stringent corporate governance procedures in place, is that much higher than a company with a good corporate governance code. As a result, it should always be on your check list of factors to investigate before making your final trading decisions.

Rachel Lee
Having worked at Morgan Stanley and BNYMellon for over 10 years in pensions and investments, Rachel now works as a full-time business and financial writer.

Risk Disclosure: Trading in financial instruments involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Before deciding to trade in financial instruments you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed. Best10Stockbrokers would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Best10Stockbrokers and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Best10Stockbrokers and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website. Best10Stockbrokers may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

Share This

Top Brokers

eToro
9.9
Read Review>
77% of retail CFD accounts lose money.

Latest Articles

Why Risk vs Reward Is Crucial To Your Trading Success
Why Risk vs Reward Is Crucial To Your Trading Success
Online CFD Trading: How to Find the Best CFD Trading Platform in UK
Online CFD Trading: How to Find the Best CFD Trading Platform in UK
Top 3 CFD Brokers and Trading Tips For UK Investors
Top 3 CFD Brokers and Trading Tips For UK Investors
Is Crypto Dead?
Is Crypto Dead?
Five Ways To Get The Right Mindset When Trading
Five Ways To Get The Right Mindset When Trading