Document Title: Corporate governance, importance of corporate governance

Paper code: 13063

Corporate governance, importance of corporate governance

In simple terms, corporate governance is the system of rules, practices, and processes by which a firm is directed and controlled (Bhagat and Bolton, 2019). Corporate governance essentially involves balancing the interests of a company's many stakeholders, such as shareholders, senior management executives, customers, suppliers, financiers, the government, and the community.

In Uganda, the 2012 Companies Act provides the primary framework for governance of companies and introduced a code of corporate governance that is voluntary for private companies and mandatory for new public companies. This code of Corporate Governance is enshrined under Table F of the Companies Act.

The separation of ownership and control together with the increasing involvement of other stakeholders who have an interest in the business of the company such as financiers, regulators, surrounding communities and employees has accordingly given rise to the need for a uniform and comprehensive system of control based on the predominant principles of transparency, fairness, responsibility and accountability.

The OECD principles of corporate governance, 2006 cover five areas: The rights of shareholders, the equitable treatment of shareholders, the role of stakeholders, disclosure and transparency, the responsibility of the board. Corporate governance in Uganda is approached in two forms. The mandatory form, also called ‘comply or else’, and the voluntary one also known as ‘comply or explain’.

Corporate governance plays a crucial in organizations which include but are not limited to the following;