A 6-step guide to assess corporate governance for retail investors
Upon buying the equity share, investors effectively entrust their funds to management for the company's operations. Therefore, it is crucial to ensure that management decisions prioritise the best interests of shareholders, which underscores the importance of assessing good corporate governance within the company.
The separation of management and ownership within the company structure gives rise to an agency problem — the conflict of interest between the company's management and its stockholders. In numerous past instances, management decisions have prioritised personal benefit over minority shareholders' interests. Subsequently, when news surfaces revealing possible mismanagement within the company, share prices plummet.
To mitigate such risks, investors should scrutinise the following reports, which are indicators of corporate governance:
1. Secretarial Audit Report: This report highlights applicable laws and regulations, as well as significant events affecting the company's affairs, including any breaches of law or regulatory notices issued to the company.
2. Statutory Audit Report: In addition to expressing an opinion on the fairness of financial statements, this report may include a section on key audit matters, emphasising matters deemed crucial by the auditor and communicated with management and the board of directors. Emphasis of matter and material uncertainty over going concern paragraphs may also be included if necessary.
3. Internal Audit Report: This report evaluates the adequacy and operating
