Define Corporate Governance

The extent to which businesses are socially

responsible for meeting legal, ethical and
economic responsibilities placed on them
by shareholders. The aim is for businesses
to create higher standards of living and
quality of life in the communities in which
they operate, while still preserving
profitability for stakeholders.
Corporate Governance Principles
Contemporary discussions of corporate
governance tend to refer to principles
raised in three documents released since
1990: The Cadbury Report (UK, 1992), the
Principles of Corporate Governance (OECD,
1998 and 2004), the Sarbanes-Oxley Act of
2002 (US, 2002). The Cadbury and OECD
reports present general principles around
which businesses are expected to operate
to assure proper governance. The
Sarbanes-Oxley Act, informally referred to
as Sarbox or Sox, is an attempt by the
federal government in the United States to
legislate several of the principles
recommended in the Cadbury and OECD
reports.

Rights and equitable

treatment of shareholders:[15][16]
[17]
Organizations should respect the
rights of shareholders and help
shareholders to exercise those rights.
They can help shareholders exercise
their rights by openly and effectively
communicating information and by
encouraging shareholders to
participate in general meetings.

Interests of other
stakeholders:[18] Organizations
should recognize that they have legal,
contractual, social, and market driven
obligations to non-shareholder
stakeholders, including employees,
investors, creditors, suppliers, local
communities, customers, and policy
makers.

Role and responsibilities of

the board:[19][20] The board needs
sufficient relevant skills and
understanding to review and
challenge management performance.
It also needs adequate size and
appropriate levels of independence
and commitment.

Integrity and ethical behavior:

[21][22]
Integrity should be a
fundamental requirement in choosing

corporate officers and board

members. Organizations should
develop a code of conduct for their
directors and executives that
promotes ethical and responsible
decision making.
Disclosure and transparency:
[23][24]
Organizations should clarify and
make publicly known the roles and
responsibilities of board and
management to provide stakeholders
with a level of accountability. They
should also implement procedures to
independently verify and safeguard
the integrity of the company's
financial reporting. Disclosure of
material matters concerning the
organization should be timely and
balanced to ensure that all investors
have access to clear, factual
information.

to create higher standards of living and

quality of life in the communities in which
they operate, while still preserving
profitability for stakeholders.
Define Board of Directors and their
functions
A board of directors is a body of elected

or appointed members who jointly oversee

the activities of a company or organization.
Other names include board of
governors, board of managers, board
of regents, board of trustees,
and board of visitors. It is often simply
referred to as "the board".
A board's activities are determined by the
powers, duties, and responsibilities
delegated to it or conferred on it by an
authority outside itself. These matters are
typically detailed in the
organization's bylaws. The bylaws
commonly also specify the number of
members of the board, how they are to be
chosen, and when they are to meet.
Stakeholders theory
In an organization with voting
Stakeholder theory is a theory
members, e.g., a professional society, the
of organizational
board acts on behalf of, and is subordinate
management and business ethics that
to, the organization's full group, which
addresses morals and values in managing
usually chooses the members of the board.
an organization.
In a stock corporation, the board is elected
by theshareholders and is the
Stakeholder theory suggests that the
highest authority in the management of
purpose of a business is to create as much the corporation. In a non-stock
value as possible for stakeholders. In order corporation with no general voting
membership, e.g., a typical university, the
to succeed and be sustainable over time,
board is the supreme governing body of
executives must keep the interests of
the institution;[1] its members are
customers, suppliers, employees,
sometimes chosen by the board itself.[2][3]
communities and shareholders aligned and
Typical duties of boards of directors
going in the same direction.
include:[4][5]

governing the organization by

establishing broad policies and
Innovation to keep these interests aligned
objectives;
is more important than the easy strategy of

selecting, appointing, supporting

trading off the interests of stakeholders
and reviewing the performance of
against each other. Hence, by managing
the chief executive;
for stakeholders, executives will also create
ensuring the availability of
as much value as possible for shareholders
adequate financial resources;
and other financiers.

approving annual budgets;

accounting to the stakeholders for

the organization's performance;

setting the salaries and

Responsible/Corporate Citizenship
compensation of company
The extent to which businesses are socially
management;
responsible for meeting legal, ethical and
The legal responsibilities of boards and
economic responsibilities placed on them
by shareholders. The aim is for businesses board members vary with the nature of the
organization, and with the jurisdiction

within which it operates. For companies

with publicly trading stock, these
responsibilities are typically much more
rigorous and complex than for those of
other types.
Typically the board chooses one of its
members to be the chairman, who holds
whatever title is specified in the bylaws.
The OECD Principles of Corporate
Governance (2004) describe the
responsibilities of the board; some of these
are summarized below:[1]

Board members should be

informed and act ethically and in good
faith, with due diligence and care, in
the best interest of the company and
the shareholders.

Review and guide corporate

strategy, objective setting, major
plans of action, risk policy, capital
plans, and annual budgets.

Oversee major acquisitions and

divestitures.

Select, compensate, monitor and

replace key executives and oversee
succession planning.

Align key executive and board

remuneration (pay) with the longerterm interests of the company and its
shareholders.

Ensure a formal and transparent

board member nomination and
election process.

Ensure the integrity of the

corporations accounting and financial
reporting systems, including their
independent audit.

Ensure appropriate systems of

internal control are established.

Oversee the process of disclosure

and communications.

Where committees of the board

are established, their mandate,
composition and working procedures
should be well-defined and disclosed.
Define well governed company
A well governed company is a company
with a future. Progressing in conditions of
sustainability as a guarantee for growth
is one of the keys to good business
governance. The good governance of
organizations increases the confidence of
investors and, consequently, their value in
the markets.