Importance of Corporate Governance and its Basic Principles

It is the first article in a series of articles written by Abduraheem Padinhare Kayakalil Associate at Hamdan Al Shamsi Lawyers and Legal Consultants to give a better insight to the readers about the corporate governance practices under the best practice principles and the UAE legal system through innovative suggestions of its implementation for your organisation. Next series will be on the UAE regulatory framework on corporate governance.

Governance is relatively a political concept often used in the administration of a state or territory through multiple functionaries. From that sphere, it is a different thing for different people. However, it implies a high level of organisational effectiveness in relation to policy formulation and the policies pursued, especially in the conduct of economic policy and its contribution to growth, stability and welfare.

We look at the governance from the business point to effectively contribute to the corporate eco-system. Corporations are established under the principle of the corporate veil with the commercial wisdom of choosing their own mode of governance. Any hint which affects the rights of corporations to administer in the way they wish shall result in the violation institutional autonomy of corporations.

But the check and balance are rules of law and nothing stands above them. Therefore, to protect the interest of multiple stakeholders of corporations, the nation states enact the regulatory framework without transgressing into the decision-making powers of commercial entities.

Corporate Governance is a system by which the companies are directed and controlled, and it provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined by assuring the cordial relationship with stakeholders under the legal arms.

Conceptually, corporate governance is a mixture of strong compliance and adherence to the best practice principles. It is more a strategic tactic for effective management under the principle of transparency, accountability, stability and productivity. Corporate governance is comparatively a new concept in the Middle East, though regulatory frameworks are on place for listed companies in the UAE by the promulgation of corporate governance rules 2016.

Certain private companies have a self-framed management framework. At the grass-root level especially, smaller companies evaluate governance, management, administration and ownership as an interchangeable concept. An effective governance mechanism presents a structured path for infusing better management practices, effective oversight and control mechanism which leads to opportunities for growth, financing, exit strategies and improved performance.  For more information please contact Abduraheem Padinhare Kayakalil  at Hamdan AlShamsi Lawyers & Legal Consultants.