What Does Corporate Governance Mean?
Corporate governance refers to the way a company is run. It encompasses its values, its goals, its policies, and its practices.
An organization's corporate governance is steered primarily by its board of directors. It is the board's responsibility to:
Good corporate governance is generally understood as balancing the interests of all stakeholders, such as the shareholders, investors, customers, employees, and the wider community. It is separate from the company's daily decisions and activities, which are under the purview of the management team.
Safeopedia Explains Corporate Governance
A company's board of directors is made up of members elected by of individuals elected by shareholders. Their top priority is propping up the organization's best interests, as well as aligning the interests of shareholders and managers.
The board of directors includes inside directors (executives such as the chief executive officer and managers), outside directors (non-executive directors), and a chairperson. The responsibilities of the board of directors include:
- Establishing company policies
- Managing internal controls
- Recruiting and dismissing executives
- Establishing compensation for executives
- Monitoring the performance of executives
- Approving stock issuance and paying dividends
Aspects of Corporate Governance
There are various aspects involved in corporate governance that provide the framework to attain the objectives of the organization. Many shareholders look beyond profitability to how a company's operations contribute to other causes such as environmental sustainability, social betterment, and sound corporate governance.
An organization’s ability to comply with legal and regulatory requirements and operate ethically also are part of corporate governance.
Some aspects of corporate governance include:
- Creative risk management (including identifying and mitigating risks within the organization arising from operations, strategies, finance, and reputation)
- Strategic planning (identifying current opportunities and seizing them to make the company competitive and ensure its future value)
- Talent management (attracting, retaining, and improving human resources in the organization)
- Succession planning (training the next leaders so they are ready to take over the leadership roles of exiting directors)
- Transparency in accounting and finances, conflicts of interest, risk to shareholders, and other matters (all of which must be disclosed in a timely, accurate, and clear manner)
- Fairness and equal consideration in the treatment of all stakeholders