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 should be the practice/practices in good corporate governance?
Select the correct answer using the codes given below:
The passage explicitly states that corporate governance involves "complying with all the laws of the land." Labour and tax laws constitute fundamental components of a country's legal framework. Therefore, adherence to these specific laws is directly aligned with the principles of good corporate governance as outlined in the passage, making Statement 1 correct.
Statement 2 is incorrect. While the passage mentions the positive contribution of "an active group of independent directors on the board" towards ensuring market confidence, it does not advocate for or even suggest the inclusion of a "government representative" as an independent director to ensure transparency. This proposition is an extrapolation not supported by the provided text.
Statement 3 is incorrect. The passage highlights the principle that those in control must "distinguish between what are personal and corporate funds while managing a company." This emphasizes the clear segregation and identification of funds, rather than imposing a prohibition on managers from investing their personal funds in the company. The statement misinterprets the requirement for distinction as an absolute restriction on personal investment.