Scope of corporate governance: |
Corporate governance is "the system by which companies are directed and controlled". It involves regulatory and market mechanisms, and the roles and relationships between a company’s management, its board, its shareholders and other stakeholders, and the goals for which the corporation is governed. In contemporary business corporations, the main external stakeholder groups are shareholders, debt holders, trade creditors, suppliers, customers and communities affected by the corporation's activities. Internal stakeholders are the board of directors, executives, and other employees.
Corporate Governance has a broad scope. It includes both social and ...view middle of the document...
It should provide effective redress for violation of rights.
It should encourage stakeholders to assume a role in the corporation that enhances the performance of the corporation and the market;
It should provide for disclosure of information relevant to the interests of stakeholders.
Transparency, disclosure of information and audit
A corporate governance framework should ensure the full, timely and detailed disclosure of information on all material matters, including the company's financial situation, performance, ownership structure and governance.
It should include the establishment of an (internal) audit committee.
Transparency/disclosure includes disclosure of information on:
- Financial/operating results
- Ownership structure
- Members of the board of directors and management
- Quantitative and qualitative matters concerning employees and other stakeholders in the corporation
- Governance structures and policies
- Corporate targets and prospects
- Execution of unusual and complex transactions, transactions including derivative products and their level of risk
In relation to financial transparency and information disclosure, the criteria examined are the type of public disclosure standards adopted; the timing of, and access to, public disclosure; and the independence and standing of the auditor.
The board of directors
A corporate governance framework should ensure the strategic leadership of the corporation, the efficient monitoring of management by the board of directors.
Accountability of board to its corporation and shareholders.
Meetings, for example one a month; process; Chair/CEO (separation of duties and responsibilities) etc.
Non-executive members of the board
These members should form independent judgments, especially with respect to the corporation’s strategy, performance, asset management and management appointments;
Non-executive members should be independent from executive members of board (e.g. family members should not be admitted) and should not have a business relationship with the corporation or any other commercial involvement that may affect their independent judgment
Interlocking directorships should be avoided.
Executive management, compensation and performance
Management compensation should be tied to the corporation’s general level of profitability and overall performance.
Total compensation should be disclosed in financial statements.
Procedures for determining compensation should be disclosed.
A remuneration committee (or review committee) should be established.
Selected issues in corporate governance: regional and country experiences
The OECD, in "Corporate Governance: Improving Competitiveness and Access to Capital in Global Markets" (1998b), highlights the importance of transparency and disclosure: "The disclosure of the corporation’s contractual and governance structures may reduce...