ACCA Financial Management (F9) Certification Practice Exam

What is the purpose of corporate governance?

1. To maximize employee satisfaction

2. To ensure the organization is directed and controlled effectively

3. To minimize operational costs

4. To enhance shareholder dividends

The correct answer is: To ensure the organization is directed and controlled effectively

The purpose of corporate governance primarily revolves around ensuring that an organization is directed and controlled effectively. This encompasses a framework of rules, practices, and processes through which a company is operated and regulated. The main goals of corporate governance are to promote transparency, accountability, and fairness in a company's relationships with its stakeholders, including shareholders, management, customers, suppliers, financiers, government, and the community. Effective corporate governance helps to establish a system that not only safeguards the interests of stakeholders but also enhances the long-term value of the organization. It involves setting goals, providing directions, overseeing performance, and assessing risks, which are crucial for achieving sustainable growth and building trust with stakeholders. While aspects such as employee satisfaction, operational costs, and shareholder dividends can be influenced by good corporate governance practices, they do not capture the comprehensive role of governance itself. Employee satisfaction may improve as a result of effective governance leading to a healthy workplace culture, but it is not the central purpose. Similarly, minimizing operational costs and enhancing shareholder dividends are outcomes that can result from strong governance but are not indicative of its broader objectives.