Read the following passage carefully, and answer question. Introduction of Corporate Governance in a company brings order and methods in decision making process and fixes who should own the responsibility. The company will focus on its mission, vision and not any personal likes dislikes of a few top officers. The benefits of corporate governance are difficult to quantify in short range. Accounting jugglery and showing profits give a company's short term gains but they are not long term policies for financial credibility. True financial performance of a company, openness and governance policies give investor's confidence. The unethical policies or mismanagement by CEO or director of a company will be exposed by adhering to corporate governance principles. Corporate governance will throw light on excessive remunerations given to directors or CEOs. It improves investors confidence and relations. The occurrence of frauds and mismanagement can be detected early for remedial actions. It is also agreed that no system can remove fraudulent practices fully. Corporate governance is an open democratic system. They may appear long winded or time consuming or individual decision making is hindered.
What is one of the primary goals of including corporate governance in a company?
Bringing order and method to decision making.
Understanding the Primary Goals of Corporate Governance
The question asks about one of the main objectives when implementing corporate governance within a company. To answer this, we need to carefully read and understand the provided passage about corporate governance.
Analyzing the Passage on Corporate Governance
The passage introduces corporate governance by stating its initial effects and purposes:
- It brings order and methods in the decision making process.
- It fixes responsibility.
- The company focuses on its mission, vision, not personal likes/dislikes of officers.
- Benefits are hard to quantify short-term.
- True financial performance and governance build investor confidence.
- Unethical policies and mismanagement are exposed.
- Excessive remunerations can be highlighted.
- Investor confidence and relations improve.
- Frauds and mismanagement detection is early.
- No system fully removes fraudulent practices.
- It is an open democratic system.
- It might seem long, time-consuming, or hinder individual decisions.
The very first sentence explicitly states, "Introduction of Corporate Governance in a company brings order and methods in decision making process and fixes who should own the responsibility." This highlights bringing order and method to decision making as a fundamental outcome and primary purpose of introducing corporate governance.
Evaluating the Options
Let's examine each option in light of the passage:
- Maximizing short-term profits: The passage contrasts "accounting jugglery and showing profits" for short-term gains with the "long term policies for financial credibility" that true financial performance, openness, and governance provide. This suggests corporate governance is focused on long-term financial health and credibility rather than maximizing short-term profits, which might even be achieved through unethical means that governance aims to expose.
- Discouraging personal likes and dislikes of top management: The passage states that corporate governance helps the company focus on its mission and vision, "and not any personal likes dislikes of a few top officers." This is indeed an important outcome of good corporate governance, ensuring decisions serve the company's purpose rather than personal preferences.
- Bringing order and method to decision making: The passage explicitly states, right at the beginning, that corporate governance "brings order and methods in decision making process". This is presented as a direct and primary result of implementing corporate governance.
- Enhancing competition in the market: The passage does not mention anything about market competition or how corporate governance affects it. Therefore, this is not presented as a goal of corporate governance in this text.
Identifying the Primary Goal based on the Passage
Comparing options 2 and 3, while discouraging personal preferences (Option 2) is a benefit derived from governance (by focusing on mission/vision), bringing order and method to decision making (Option 3) is stated as a direct, initial outcome of introducing corporate governance. The passage begins by highlighting this as a fundamental aspect of implementing the system.
Based on the prominent placement and direct statement in the passage's introduction, "Bringing order and method to decision making" is presented as one of the primary goals of corporate governance.
Therefore, based on the provided text, bringing order and method to decision making is identified as a key primary goal of corporate governance.
Revision Table: Key Concepts in Corporate Governance
| Concept | Description based on Passage |
|---|---|
| Order and Method | Introduced in decision making process by governance. |
| Responsibility | Fixed by governance. |
| Company Focus | Mission and vision, not personal likes/dislikes. |
| Financial Credibility | Achieved through true performance, openness, and governance (long-term). |
| Investor Confidence | Improved by governance, openness, and financial performance. |
| Fraud/Mismanagement | Exposed and detected early by adhering to governance principles. |
| Excessive Remuneration | Can be highlighted by governance. |
Additional Information: Benefits of Corporate Governance
Beyond bringing order to decision-making, corporate governance offers several advantages as indicated or implied by the passage:
- Improved accountability by fixing responsibility.
- Increased investor trust and better investor relations.
- Reduced risk of fraud and mismanagement through early detection.
- Ensuring ethical conduct and transparency in company operations.
- Promoting a long-term perspective focusing on sustainable financial health.
- Ensuring company decisions align with its strategic goals (mission/vision) rather than individual interests.
While the passage mentions potential drawbacks like being time-consuming or hindering individual decision-making, the overall emphasis is on the positive structural and ethical benefits it brings to a company.
Important Questions from Corporate governance and business ethics
Corporations are controlled and directed by which one of the following?
As per the Anglo-Saxon Model of Corporate Governance, the authority lies with the following. Arrange these in decreasing order of authority.
A. Board of Directors
B. Managers
C. Shareholders
D. Employees (Company)
E. Trade unions
Choose the correct sequence from the options given below
Assertion (A) : Corporate governance is an important instrument of investor protection.
Reason (R) : Strong corporate governance is indispensable to resilient and vibrant capital markets.
Which one of the following options is correct?
Which among the following is not a correct statement with regard to Corporate Governance in India ?
List out from the given statements the important ethical principles that a business should follow:
a) To take the necessary action for the development of the concerned industry or business.
b) Pay taxes and discharge other obligations promptly.
c) To ensure the best utilisation of the human resources.
d) Refrain from secret kickbacks or pay-offs to customers, suppliers, administrators, etc.
e) Ensure payment of fair wages and fair treatment of employees.
Choose the correct answer from the options given below:
