Corporate Governance

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What is Corporate Governance?

Corporate Governance is the whole of all policies, procedures and rules directing and controlling a company, governing the relationships between its shareholders, (stakeholders), directors and management, as defined by the applicable laws, the corporate charter, the company's bylaws, and formal policies.

Primarily it is about managing top management, building in checks and balances to ensure that the senior executives pursue strategies that are in accordance with the corporate mission.

It consists of a set of processes, customs, policies, laws and institutions affecting the way a corporation is directed, administered or controlled.

Organizations should respect the rights of shareholders and help shareholders to exercise their rights. But also organizations should recognize that they have legal, contractual, social, and market driven obligations to non-shareholder stakeholders, including employees, investors, creditors, suppliers, local communities, customers, and policy makers.

It is extremely difficult to serve and protect the interests of all stakeholders under one common denominator.

That's why the corporate governance structure of a firm aims at creating a force field in which future behaviors and decisions will lead to maximum wealth generations for the shareholders, considering the interest of all stakeholders.  In other words: corporate governance governs the relationships among the many players involved (the stakeholders) and the goals for which the corporation is governed. The principal players are the shareholders, management and the board of directors. Other stakeholders include employees, suppliers, customers, banks and other lenders, regulators, the environment and the community at large.

3 Functions of Corporate Governance (Trickler, 1994):

1. Forming function: influence the forming of the corporate mission. A related important part of corporate governance deals with accountability, fiduciary duty and mechanisms of auditing and control. In this sense, corporate governance players should comply with codes to the overall good of all constituents.

2. Performance function: help improving the performance of the company, by judging strategy proposals brought forward by the top management or even actively participating in the strategy formation process. A related focus is economic efficiency, both within the corporation (such as the best practice guidelines) as well as externally (national institutional frameworks). In this "economic view", the corporate governance system should be designed in such a way as to optimize results. Some argue that the firm should act not only in the interest of shareholders, but also of all the other stakeholders.

3. Conformance function: ensure and monitor conformance to the corporate mission and strategy.

Note that the term "Corporate Governance" actually has multiple meanings:

• A legal meaning, depending on the country where a firm resides or operates.

• The processes by which companies are directed and controlled.

• Encouragement of companies' compliance with codes (as in corporate governance guidelines).

• A field in economics, which studies the many issues arising from the separation of ownership and control.

• The framework of rules, relationships, systems and processes within and by which fiduciary authority is exercised and controlled in corporations.

Corporate Governance regimes differ considerably between countries. In designing a corporate governance regime, 3 issues are particularly relevant (Trickler, 1994)

1. Board Structure (Two-tier / One-tier)

2. Board Membership (are employees represented or not)

3. Board Tasks and Responsibilities

The interest in Corporate Governance is seasonal, it can be said that low stock market levels are conducive for more attention for the governance practices within corporations. A recent example were the high-profile collapses of such firms as Enron and WorldCom and the burst of the Internet Bubble which let to a lot of attention for the topic, especially to Corporate Governance Rating. Critics said however that had Sarbanes-Oxley preceded Enron they probably would have checked the boxes on that too.

Corporate Governance is strongly related to other concepts such as Corporate Transparency, Corporate Accountability, and Corporate Responsibility.

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Expert Tips Advanced insights about Corporate Governance. Here you will find professional advices by experts. Consultancy Tips Teaching Tips Practical Implementation Tips Effective Top Management Teams in Multinationals. Requirements and Characteristics Board of Directors, Leadership Teams, Multinationals, Top Team Management There are three requirements for effective top team management in large, multinational enterprises: 1. Clear charter an... How Long Should a CEO Remain in the Job? CEO Performance, CEO Life Cycle, CEO Tenure, CEO and Board Relation What is the best amount of years for a CEO to remain in his or her job? Sometimes you hear people mentioning 7 years or ... Stock Buybacks as a Means of Value Extraction Stock Buybacks, Stock Repurchases, Corporate Profitability, Economic Prosperity, Executive Compensation, EPS According to Prof. Lazonick, in the USA the increased corporate profitability over the last couple of years did not lead... How to Inject Corporate Purpose Into Corporate Governance Enacting Purpose, Organizational Purpose Implementation, Corporate Sustainability, ESG, SCORE Framework Many models and frameworks have been created wrt Corporate Responsibility and ESG. But how can you actually make it happ... Board and Ownership Interlocks… Interlocking Directorates Board Interlocks, Ownership Interlocks, Indirect Interlocks, Intercorporate Relations, Interlocking Directorates Interlocking refers to the practice of members of a corporate board of directors serving on the boards of multiple corpo... Corporate Responsibility Committee Corporate Responsibility, Corporate Sustainability, Strategic Innovation, Corporate Governance Even if the interest for and significance of Corporate (Social) Responsibility (CSR) and Corporate Sustainability (CS) h...

Information Sources Various sources of information regarding Corporate Governance. Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops. The Purpose of Business: Stockholder versus Stakeholder Theories Stakeholder Analysis; Stakeholder Commitment This presentation elaborates on the objectives and purposes of businesses according to different views: those of stockho... The Issues Around CEO Compensation in the US Executive Compensation, Executive Performance Management, Executive Pay This presentation deals with the issues arising when setting rewards for CEO’s and includes the following sections: 1. ... The Board of Directors: Roles, Responsibilities and Duties Board of Directors, Corporate Governance, Board Accountability, Director Liability Presentation that elaborates on the roles and responsibilities of the board of directors. The presentation includes the ... Principles of Successful Corporate Governance Corporate Governance, Corporate Accountability Presentation about corporate governance and accountability, including the following sections: 1. Introduction 2. Ethic... Corporate Governance: What Role does the Board of Directors Have? Corporate Governance, Board Governance, Chairman of the Board, Corporate Secretary Presentation about Corporate Governance and the Role that the Board of Directors plays in Corporate Governance. The pres... Ethics in Corporate Governance Ethics, Corporate Governance This presentation is about the role that ethics plays in corporate governance.The presentation includes the following se... Weaknesses of Stakeholder Theory of Corporate Governance. CONs Discussion on Corporate Governance, Stakeholder Management David Brown explains what he believes is a major weakness of Stakeholder Corporate Governance. In the stakeholder model... Interview W. Ouchi: Governance versus Management Introduction to Corporate Governance Interview with W. Ouchi on corporate governance and the role of the Board of Directors. There is a difference between ma... Corporate Governance and Firm's Performance Relationship - Evidence from Tunisian Banks Corporate Governance, Firm's Performance In a publicly held corporation, ownership is separated from the control. Control rests with the Board of Directors who e...

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Compare also: Compliance Officer  |  Corporate Mission  |  Shareholder Value Perspective  |  Stakeholder Value Perspective  |  Chairman of the Board  |  Chief Executive Officer  |  Directors and Officers Liability Insurance

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