1) Loss of shareholder trust & confidence
Corporate governance establishes a company’s strategy and its objectives. Therefore, every time a company deviates from its strategy, it can weaken stakeholders' trust and the confidence they placed in that company, as it indirectly sends them a message that the company cannot be trusted. As a result, stakeholders can feel misled and cheated, leaving them looking for a way to exit the company.
Oftentimes, this can have further consequences, with investors and shareholders beginning to sell company stocks if they feel that poor business decisions are in a company's immediate future, in order to avoid any potential loss. This can start a domino effect of devastating consequences for the company, resulting in its stock prices falling and its overall value slowly diminishing.
2) Difficulty raising capital
As mentioned above, a company’s falling stock values can create a domino effect with further consequences threatening the business’s future, one of which can be difficulty in raising the company’s capital. This can partly be a result of negative perception the company created following its lack of adherence to its own corporate government strategy and controls.
It’s important to note that, for investors, the correct implementation of corporate governance principles, such as the public disclosure of information like the protection of shareholder rights, and a company’s profitability, are some of the most significant things they look for before making an investment. This is because such factors ensure return on their investment.
Subsequently, future investors may become fearful of investing in the company, as low stock values and lack of adequate corporate governance often signifies a greater possibility of risk, and ultimately loss.