Corporate governance is a challenging subject of practice, policy and ethics that involves a variety of stakeholders. It encompasses the systems and structures that ensure transparency, accountability and probity in reporting and operations of a company. It includes the manner in which boards supervise the executives of a business, and the selection, monitoring and evaluation of the CEO’s performance. It also covers the manner in which directors make financial decisions, and how they inform shareholders of these decisions.
Corporate Governance was a subject of heated debate in the 1990s, with the implementation of structural reforms aimed at building markets in former soviet countries and the Asian financial crisis. The Enron scandal of 2002, which was followed by the emergence of shareholder activism within institutions, and the financial crisis of 2008 has led to increased scrutiny. Corporate governance is a hot topic today, with new innovations and pressures constantly emerging.
The Anglo-Saxon or “shareholder primary view” places the priority on shareholders. Shareholders elect a Board of directors that directs management and sets the corporate goals. The board is responsible for choosing and reviewing the CEO, setting and monitoring the enterprise’s policies on risk management, supervising the company’s operations, and providing reports to shareholders regarding their management.
Integrity honesty, transparency, fairness and accountability are the four pillars of effective corporate governance. Integrity refers to the ethical and responsible way in which board members make decisions. Transparency is about openness and honesty as well as complete disclosure of information to all stakeholders. Fairness relates to how 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 community as a whole.