Corporate Governance

CORPORATE GOVERNANCE
Introduction
Corporate governance is the system of rules, practices, and processes by which

a firm is directed and controlled. Corporate governance essentially involves
balancing the interests of a company's many stakeholders, such as shareholders,
senior management executives, customers, suppliers, financiers, the
government, and the community.
Since corporate governance provides the framework for attaining a company's

objectives, it encompasses practically every sphere of management, from action
plans and internal controls to performance measurement and corporate
disclosure.
Key notes on corporate governance
 Corporate governance is the structure of rules, practices, and processes

used to direct and manage a company.
 A company's board of directors is the primary force influencing corporate
governance.
 Bad corporate governance can cast doubt on a company's operations and
its ultimate profitability.
 Corporate governance covers the areas of environmental awareness,
ethical behavior, corporate strategy, compensation, and risk management.
 The basic principles of corporate governance are accountability,
transparency, fairness, responsibility, and risk management.
Corporate governance is a system by which companies are directed and

controlled. Boards of directors are responsible for the governance of their
companies. The shareholders’ role in governance is to appoint the directors and
the auditors and to satisfy themselves that an appropriate governance structure
is in place.
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The responsibilities of the board include setting the company’s strategic aims,
providing the leadership to put them into effect, supervising the management of
the business and reporting to shareholders on their stewardship.
Corporate governance is therefore about what the board of a company does and
how it sets the values of the company, and it is to be distinguished from the day
to day operational management of the company by full-time executives.
Understanding Corporate Governance

Governance refers specifically to the set of rules, controls, policies, and
resolutions put in place to direct corporate behavior. A board of directors is
pivotal in governance. Proxy advisors and shareholders are important
stakeholders who can affect governance.
Communicating a firm's corporate governance is a key component of

community and investor relations. For instance, Apple Inc.'s investor relations
site outlines its corporate leadership (its executive team and board of directors).
It provides corporate governance information including its committee charters
and governance documents, such as bylaws, stock ownership guidelines, and
articles of incorporation.
Benefits of Corporate Governance

 Good corporate governance creates transparent rules and controls,
provides guidance to leadership, and aligns the interests of shareholders,
directors, management, and employees.
 It helps build trust with investors, the community, and public officials.
 Corporate governance can provide investors and stakeholders with a clear

idea of a company's direction and business integrity.
 It promotes long-term financial viability, opportunity, and returns.
 It can facilitate the raising of capital.
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 Good corporate governance can translate to rising share prices.
 It can lessen the potential for financial loss, waste, risks, and corruption.
 It is a game plan for resilience and long-term success.
Importance of Corporate Governance

 Corporate governance is critical for the proper functioning of an
organization. Demonstrating good corporate governance is important for
maintaining a company's reputation.
 Corporate governance is based on a set of rules, bylaws, policies and
procedures to ensure company accountability. When done correctly, it
establishes a framework for attaining a company's objectives in all
spheres of management. It also recognizes the importance of
shareholders. Shareholders elect the company's members of the board,
fund company operations and have a direct say in the operation of the
business.
 Good governance ensures a company's integrity, overall direction, risk
management and success planning. This, in turn, helps companies stay
financially viable and build strong community, shareholder and investor
relations and trust. Demonstrating good corporate governance is often
considered as important as profitability for businesses.
Bad corporate governance can lead to a host of negative outcomes, such as the
following:
i. Failure to reach company goals;

ii. Loss of support from stakeholders and community;
iii. Financial losses; and
iv. Collapse of the company.
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The Principles of Corporate Governance
While there can be as many principles as a company believes make sense, some
of the more well-known include the following.
Fairness: The board of directors must treat shareholders, employees, vendors,

and communities fairly and with equal consideration.
Transparency: The board should provide timely, accurate, and clear

information about such things as financial performance, conflicts of interest,
and risks to shareholders and other stakeholders.
Risk Management: The board and management must determine risks of all
kinds and how best to control them. They must act on those recommendations to
manage them. They must inform all relevant parties about the existence and
status of risks.
Responsibility: The board is responsible for the oversight of corporate matters

and management activities. It must be aware of and support the successful,
ongoing performance of the company. Part of its responsibility is to recruit and
hire a CEO. It must act in the best interests of a company and its investors.
Accountability: The board must explain the purpose of a company's activities

and the results of its conduct. It and company leadership are accountable for the
assessment of a company's capacity, potential, and performance. It must
communicate issues of importance to shareholders.

Corporate Governance

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CORPORATE GOVERNANCE

Corporate governance is the system of rules, practices, and processes by which

Since corporate governance provides the framework for attaining a company's

Key notes on corporate governance

 Corporate governance is the structure of rules, practices, and processes

Corporate governance is a system by which companies are directed and

Understanding Corporate Governance

Communicating a firm's corporate governance is a key component of

Benefits of Corporate Governance

 Corporate governance can provide investors and stakeholders with a clear

 It promotes long-term financial viability, opportunity, and returns.

 It can facilitate the raising of capital.

 It is a game plan for resilience and long-term success.

Importance of Corporate Governance

i. Failure to reach company goals;

Fairness: The board of directors must treat shareholders, employees, vendors,

Transparency: The board should provide timely, accurate, and clear

Responsibility: The board is responsible for the oversight of corporate matters

Accountability: The board must explain the purpose of a company's activities

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