What Is a Corporate Governance?

What Is a Corporate Governance?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

Corporate Governance refers to the system of rules, practices, and processes by which a company is directed and controlled. It essentially involves balancing the interests of a company’s many stakeholders, such as shareholders, management, customers, suppliers, financiers, government, and the community. Corporate Governance provides a framework for attaining a company’s objectives and encompasses practically every sphere of management, from action plans and internal controls to performance measurement and corporate disclosure.

Related Questions

1. What is the importance of Corporate Governance?

Good Corporate Governance is vital to the integrity of corporations, financial institutions, and markets. It influences how the company is doing in terms of stability, and provides guidelines for managing risks. It also impacts the company’s reputation among the investors, which is crucial for a company to survive in the long run.

2. What forms the basis of Corporate Governance?

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The basis of Corporate Governance is the company’s legal, regulatory, and business environment. Broadly, it operates along the principles of transparency, accountability, fairness, and responsibility. It calls for the company’s management and the board of directors to undertake their duties in a responsible and competent way that respects the rights of shareholders and stakeholders.

3. Who are the key players in Corporate Governance?

The key players in Corporate Governance are the board of directors, management, shareholders, and other stakeholders. The board of directors are responsible for overseeing the company’s overall direction, while management runs the daily operations. Shareholders and stakeholders, such as employees, customers, and the wider community, also have interests in the company’s decisions and performance.

4. How can a company improve its Corporate Governance?

A company can improve its Corporate Governance by setting clear objectives matched with the proper checks and balances to ensure the integrity, fairness, and efficiency of its operations. This can be achieved by recruiting skilled board members, establishing a strong regulatory compliance system, ensuring transparency in financial reporting, and engaging in regular communication with shareholders.

5. What are some examples of poor Corporate Governance?

Poor Corporate Governance can manifest in various ways such as lack of transparency in financial reporting, no or poor oversight from the board, excessive executive compensation with little link to performance, neglecting the rights of shareholders or stakeholders, and engaging in risky business practices without proper management and disclosure.