The adoption of corporate governance ensures that investors are protected in an organization. Corporate governance provides guidelines in which business objectives are realized through ethical and lawful means. For this reason, investors’ protection needs are stipulated, which increases an organization stakeholders’ confidence and benefits in the long term.
Based on the recent global financial crisis and corporate financial scandals, it is vital to understand the issues addressed by corporate governance. In this case, the adoption of corporate governance influences the behavior of investors and the overall performance of the business (Colley, 2005). Therefore, investors evaluate their investment decisions based on the annual reports published by the companies.
Investors’ protection in corporate governance plays a critical role during the investment decision-making process. In this case, investors should learn about the rights to access information disclosed in annual reports before making investment decisions. Organizations that respect investors’ rights as well as assisting them exercise their rights provide investors with confidence and certainty in their actions.
In most cases, organizations have to communicate openly and effectively with their stakeholders during general meetings to prevent instances of vanishing companies.
Consequently, investors get a chance to access the company in terms of its performance and ethical conduct, which influence their investment decisions. Based on transparency and accountability witnessed during the process, investors are protected from corporate frauds and accounting scandals (Kim & Nofsinger, 2007).
The responsibilities of the board in investors’ protection are addressed within corporate governance. In this regard, investors’ protection is realized through the relevant skills and management capabilities adopted by the board before making investment decisions. Based on the characters and personalities of the board members, insider trading can be curbed, which prevent the vulnerability of investors to losses.
The board influences the performance of a business through their level of independence and commitment. In addition, the board should have skills and knowledge of assessing the organization’s annual reports to evaluate its performance (Colley, 2005).
Integrity and ethical standards are critical in preparation of annual reports as addressed by corporate governance. Through this practice, investors’ protection can be realized during the selection of management leaders and board members, who advocate for integrity of financial reports. In addition, the codes of conduct formulated to guide directors and executives, should reflect the need to curb exposure of investors to losses.
In this regard, the management is liable to undertake decision-making processes in ethical and responsible means. Through these efforts, the higher level of investor protection enhances the perception of good corporate governance for an organization.
The level of disclosure and transparency influence the degree of investor protection needs. An organization should clarify and publicize the annual reports, which offer investors with a degree of accountability.
Furthermore, an organization should adhere to the procedures, and promote integrity when preparing its financial statements. Meanwhile, the process of disclosing material matters affecting the company should be timely and accurate. This process will ensure that investors are accessible to clear, accurate and factual information (Kim & Nofsinger, 2007).
Consequently, investors will be protected from the instances of non-disclosure of material facts, which may affect an organization in the future. Notably, it is critical to condemn and fire management of organizations that provide sensible information always regardless of its performance, protect investors from the severity of losses.
Similarly, the conduct of business in adherence to the regulations of a country is portrayed in corporate governance. In this case, investors are protected through determination of the legality of the business, before investors can direct their resources to the firm.
As a result, investors are protected from firms that practice money laundering activities and terrorist funding. Therefore, investors are made confident and flexible to undertake their investments without severe risks of organizations. These issues addressed by corporate governance with respect to investor protection depict the level of importance, which investors attach to corporate governance.
References
Colley, J. L. (2005). What is corporate governance?. New York: McGraw-Hill.
Kim, K. A., & Nofsinger, J. R. (2007). Corporate governance (2nd ed.). Upper Saddle River, N.J.: Pearson/Prentice Hall.