Question

Which of the following is a benefit of corporate governance?

1) It encourages transparency.
2) It decreases investor confidence.
3) It creates a less definable brand.
4) It maximizes corruption.

Answer 1

Corporate governance primarily benefits companies by encouraging transparency. The correct answer is option 1.

Step-by-step explanation:

Among the choices given for the benefits of corporate governance, the one that stands out as a positive attribute is that it encourages transparency. Effective corporate governance involves various mechanisms like a strong board of directors, diligent auditing, and active outside investors to oversee and ensure that a company's management acts in the best interest of its shareholders and stakeholders.

The case of Lehman Brothers exemplifies a failure in corporate governance, where inaccurate financial information was provided to investors, undermining investor confidence and questioning the integrity of the financial markets.

Option 1): It encourages transparency is, therefore, the correct benefit of corporate governance. When transparency is a foundational aspect of a company, it fosters trust, supports investor confidence, and builds a more definitive and respected brand - contrary to the other options that suggest negative consequences such as decreased investor confidence, less definable brand, and maximized corruption, which are not benefits but drawbacks.