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Corporate governance mechanisms include policies, controls, and guidelines for managing organizations, reducing inefficiencies, and motivating employees. These mechanisms include a board of directors, internal controls, balancing power, and compensation. Large organizations use a board of directors to ensure financial returns for shareholders, while internal controls protect a company’s information. Balancing power divides responsibilities and compensation rewards performance.
Corporate governance mechanisms are the policies, guidelines and controls for managing an organization and reducing inefficiencies. Company owners and executives use these mechanisms to help managers and employees understand acceptable behavior when performing company functions. Corporate governance can also provide motivating factors in an organization. Goals and objectives can include incentives to reward people who follow a company’s internal operating standards. Common corporate governance mechanisms include a board of directors, internal controls, balancing power and compensation.
Large organizations and public companies use a board of directors to ensure that the interests of outside shareholders or investors are earning sufficient financial returns. The members of the board of directors are generally voted for by the shareholders in the annual meetings. Each member has a certain number of years and is responsible for overseeing directors and executives, creating a mission or vision for the company, setting compensation levels for officers, and managing any significant internal or external conflicts. The board of directors is usually made up of people who do not work directly for the company. This provides an objective opinion to govern the organization.
Internal controls are corporate governance mechanisms that are standard policies and procedures that each individual follows within an organization. These controls help protect and safeguard a company’s business or financial information. Audits are often company-wide because executives are responsible for all company operations and financial reporting. Internal and external audits help ensure these controls are sufficient and do not create an overly restrictive work environment. Internal controls may also be guided by laws and regulations of government agencies. Companies may need to implement internal controls to avoid penalties or fines.
The balance of power in an organization is a common set of corporate governance mechanisms. Organizations often establish multiple departments, divisions, and managers to divide responsibilities and limit the number of tasks an individual completes. This ensures that no one can overextend the organization’s resources. Creating this check and balance system can also create some flexibility for companies to add additional corporate governance mechanisms. This also helps companies blend branches into their operations with as little hassle as possible.
Compensation is a type of performance-based management structure. These corporate governance mechanisms offer individual bonuses, company dues, compensation increases, additional time off or other benefits. This helps companies improve performance by giving managers and individuals the opportunity to gain personal benefit by working hard in the organization. Organizations often use this mechanism to tap into the creative traits of their employees which can help them find new ways to accomplish tasks and goals.
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