Corporate governance is based on principles such as conducting the business with all integrity and fairness, being transparent with regard to all transactions, making all the necessary disclosures and decisions, complying with all the laws of the land, accountability and responsibility towards the stakeholders and commitment to conducting business in an ethical manner. Another point which is highlighted on corporate governance is the need for those in control to be able to distinguish between what are personal and corporate funds while managing a company.
Fundamentally, there is a level of confidence that is associated with a company that is known to have good corporate governance. The presence of an active group of independent directors on the board contributes a great deal towards ensuring confidence m the market. Corporate governance is known to be one of the criteria that foreign institutional investors are increasingly depending on when deciding on which companies to invest in. It is also known to have a positive influence on the share price of the company. Having a clean image on the corporate governance front could also make it easier for companies to source capital at more reasonable costs. Unfortunately, corporate governance often becomes the centre of discussion only after the exposure of a large scam.
According to the passage, which of the following is/are the major benefit/benefits of good corporate governance?
Statement 1 is correct. The passage explicitly states that good corporate governance is known to have a positive influence on the share price of the company. It also mentions that a clean image on the corporate governance front could make it easier for companies to source capital at more reasonable costs and contributes to market confidence.
Statement 2 is incorrect. The passage does not claim that good corporate governance always leads to a rapid increase in business turnover. While it highlights benefits like increased market confidence and positive influence on share price, it does not guarantee rapid business growth or turnover.
Statement 3 is incorrect. The passage states that corporate governance is "one of the criteria" that foreign institutional investors are increasingly depending on when deciding on which companies to invest in. It does not identify it as the "main criterion" or the sole determinant for their investment decisions.