Corporate Governance

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Description of Corporate Governance. Explanation.


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Definition Corporate Governance. Description.

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.

Corporate Governance Forum
  Corporate Governance Aims
Any corporate governance framework has at least 3 purposes:
  1. TRANSPARENCY: Board is telling what is going on
  2. ACCOUNTABILITY: Board is taking responsibility
  3. CORPORATE CONTROL: Ensure the Board is doing the right things
  4. ...
  Why the Interest in Corporate Governance Today?
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- Management (M) involves the activities of directing a (part of a) business.
- Governance (G) involves setting the conditions within which o...
  A Global Corporate Governance Body is Needed
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A wise step would therefore be to INITIATE A GLOBAL INTERNATIONAL BODY to...
  Corporate Governance Rules and Ethics
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This sets the springboard for expediency. It's expediency that moves us away from ...
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  Corporate Governance and Compliance
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  Corporate Culture Vis-a-vis Societal Culture
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  Governance in Public Sector Organisations
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  HR Involvement in CG
What is the role of the HR Director in corporate governance?...
  Culture and Corporate Governance
I would be interested to read viewers' comments on culture-based differences in the ways senior managers' strategies for overseas expansion take account (or do not take account) of corporate governance....
  Corporate Governance and Strategy
How is corporate governance related to strategic management in an organization?...
  Dealing with non-profit Board of Directors
Question: is there a book/section/something that specifically addresses dealing with a non-profit's board of directors? Or boards of directors in general?...

Corporate Governance Special Interest Group

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Best Practices - Corporate Governance Premium
  Europe Reaches Agreement on Banking Supervisor: Curse or Blessing?
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  Corporate Governance: One-tier versus Two-tier Boards
Somebody asked me the other day for the differences between the two main corporate governance systems (1-tier and 2-tier boards) existing today as well as the way they're heading. I couldn't find a reasonably concise overview anywhere, so I created t...
  Internal and External Corporate Governance
Corporate Governance (CG) can be viewed as the system by which companies are directed and controlled. Also companies can be held accountable by CG, limiting managerial discretion in order to protect the interests of outsiders in the cor...
  Agency Theory: Principal-Agent Problems
I need to understand the principal-agent problems that arise in organisations. Thanks......

Expert Tips - Corporate Governance Premium

Effective Top Management Teams in Multinationals. Requirements and Characteristics

There are three requirements for effective top team management in large, multinational enterprises:
1. Clear charter and operating rules: ...
Usage (application): Board of Directors, Leadership Teams, Multinationals, Top Team Management

Stock Buybacks as a Means of Value Extraction

According to Prof. Lazonick, in the USA the increased corporate profitability over the last couple of years did not lead to higher economic prosperity...
Usage (application): Stock Buybacks, Stock Repurchases, Corporate Profitability, Economic Prosperity, Executive Compensation, EPS

Corporate Responsibility Committee

Even if the interest for and significance of Corporate (Social) Responsibility (CSR) and Corporate Sustainability (CS) has grown a lot over the last d...
Usage (application): Corporate Responsibility, Corporate Sustainability, Strategic Innovation, Corporate Governance

Resources - Corporate Governance Premium

The Purpose of Business: Stockholder versus Stakeholder Theories

This presentation elaborates on the objectives and purposes of businesses according to different views: those of stockholders and those of stakeholder...
Usage (application): Stakeholder Analysis; Stakeholder Commitment

The Issues Around CEO Compensation in the US

This presentation deals with the issues arising when setting rewards for CEO’s and includes the following sections:
1. Introduction
2. Conte...
Usage (application): Executive Compensation, Executive Performance Management, Executive Pay

The Board of Directors: Roles, Responsibilities and Duties

Presentation that elaborates on the roles and responsibilities of the board of directors. The presentation includes the following sections:
1. Ch...
Usage (application): Board of Directors, Corporate Governance, Board Accountability, Director Liability

Principles of Successful Corporate Governance

Presentation about corporate governance and accountability, including the following sections:
1. Introduction
2. Ethical principles supporte...
Usage (application): Corporate Governance, Corporate Accountability

Corporate Governance: What Role does the Board of Directors Have?

Presentation about Corporate Governance and the Role that the Board of Directors plays in Corporate Governance. The presentation includes the followin...
Usage (application): Corporate Governance, Board Governance, Chairman of the Board, Corporate Secretary

Ethics in Corporate Governance

This presentation is about the role that ethics plays in corporate governance.The presentation includes the following sections:
1. What is Corpor...
Usage (application): Ethics, Corporate Governance

Weaknesses of Stakeholder Theory of Corporate Governance. CONs

David Brown explains what he believes is a major weakness of Stakeholder Corporate Governance.
In the stakeholder model, you have a large, repres...
Usage (application): Discussion on Corporate Governance, Stakeholder Management

Interview W. Ouchi: Governance versus Management

Interview with W. Ouchi on corporate governance and the role of the Board of Directors. There is a difference between management (directing a part of ...
Usage (application): Introduction to Corporate Governance


Corporate Governance


Corporate Governance


Corporate Governance


Corporate Governance

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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