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
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  Why the Interest in Corporate Governance Today?
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  Governance versus Management
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  Corporate Governance Rules and Ethics
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  Maintaining Creativity and Flexibility Despite of Corporate Governance Mechanisms
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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
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  Culture and Corporate Governance
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  Corporate Governance and Strategy
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  Dealing with non-profit Board of Directors
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Corporate Governance Special Interest Group


Special Interest Group

 

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 difference...
     
 
  Internal and External Corporate Governance
Corporate Governance (CG) can be viewed as the ...
     
 
  Agency Theory: Principal-Agent Problems
I need to understand the principal-agent problems ...
     
 

Expert Tips - Corporate Governance Premium
 

Effective Top Management Teams in Multinationals. Requirements and Characteristics

There are three requirements for effective top tea...
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 increa...
Usage (application): Stock Buybacks, Stock Repurchases, Corporate Profitability, Economic Prosperity, Executive Compensation, EPS
 
 
 

Corporate Responsibility Committee

Even if the interest for and significance of Corpo...
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...
Usage (application): Stakeholder Analysis; Stakeholder Commitment
 

The Issues Around CEO Compensation in the US

This presentation deals with the issues arising wh...
Usage (application): Executive Compensation, Executive Performance Management, Executive Pay
 

The Board of Directors: Roles, Responsibilities and Duties

Presentation that elaborates on the roles and resp...
Usage (application): Board of Directors, Corporate Governance, Board Accountability, Director Liability
 

Principles of Successful Corporate Governance

Presentation about corporate governance and accoun...
Usage (application): Corporate Governance, Corporate Accountability
 

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

Presentation about Corporate Governance and the Ro...
Usage (application): Corporate Governance, Board Governance, Chairman of the Board, Corporate Secretary
 

Ethics in Corporate Governance

This presentation is about the role that ethics pl...
Usage (application): Ethics, Corporate Governance
 

Weaknesses of Stakeholder Theory of Corporate Governance. CONs

David Brown explains what he believes is a major w...
Usage (application): Discussion on Corporate Governance, Stakeholder Management
 

Interview W. Ouchi: Governance versus Management

Interview with W. Ouchi on corporate governance an...
Usage (application): Introduction to Corporate Governance
 
 

News about Corporate Governance


     
 

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Presentations about Corporate Governance


     
 

More about 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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