Corporate governance is an area of complex policy, ethics and practice that has many stakeholders. It encompasses the systems and structures that ensure accountability, transparency and probity in company operations and reporting. It also covers the way in that boards oversee the executive management of businesses and how they choose to monitor and evaluate the CEO’s performance. It also includes how directors make financial decisions and how they communicate those decisions to shareholders.
Corporate Governance became the subject of intense debate in the 1990s, due to the introduction of structural reforms that helped build markets in former Soviet nations and the Asian financial crisis. The Enron scandal of 2002, followed by shareholder activism in the form of institutional shareholders and the financial crisis of 2008 raised the level of scrutiny. Corporate governance is a hot topic in the present, with new ideas and pressures constantly emerging.
The Anglo-Saxon or “shareholder primary view” places the priority on shareholders. Shareholders choose the board of directors who direct management and sets strategic aims for the company. The board is responsible to select and evaluate the CEO, create and monitor enterprise risk management policies and supervise the operations of the company. They also present reports on their stewardship to shareholders.
Integrity as well as transparency, fairness and accountability are the four fundamental principles of effective corporate governance. Integrity is the ethical and responsible manner in which board members make decisions. Transparency is the term used to describe openness and honesty, as well as full public disclosure of information to all stakeholders. Fairness is the way boards treat their employees and suppliers as well as customers. The responsibility of a board is how it treats its members as well as the entire community.