Corporate Governance

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Description of Corporate Governance. Explanation.

Definition Corporate Governance. Description.

Corporate Governance are the policies, procedures and rules governing the relationships between the shareholders, (stakeholders), directors and management of a company, as defined by the applicable laws, the corporate charter, the company's bylaws, and formal policies. Primarily it is about managing top management, building in checks and balances to ensure that the senior executives pursue strategies that are in accordance with the corporate mission. It consists of a set of processes, customs, policies, laws and institutions affecting the way a corporation is directed, administered or controlled. Corporate governance governs the relationships among the many players involved (the stakeholders) and the goals for which the corporation is governed. The principal players are the shareholders, management and the board of directors. Other stakeholders include employees, suppliers, customers, banks and other lenders, regulators, the environment and the community at large.

3 Functions of Corporate Governance (Trickler, 1994):

Forming function: influence the forming of the corporate mission. A related important part of corporate governance deals with accountability, fiduciary duty and mechanisms of auditing and control. In this sense, corporate governance players should comply with codes to the overall good of all constituents.
Performance function: help improving the performance of the company, by judging strategy proposals brought forward by the top management or even actively participating in the strategy formation process. A related focus is economic efficiency, both within the corporation (such as the best practice guidelines) as well as externally (national institutional frameworks). In this "economic view", the corporate governance system should be designed in such a way as to optimize results. Some argue that the firm should act not only in the interest of shareholders, but also of all the other stakeholders.
Conformance function: ensure and monitor conformance to the corporate mission and strategy.

Note that the term "Corporate Governance" actually has multiple meanings:

A legal meaning, depending on the country where a firm resides or operates.
The processes by which companies are directed and controlled.
Encouragement of companies' compliance with codes (as in corporate governance guidelines).
A field in economics, which studies the many issues arising from the separation of ownership and control.
The framework of rules, relationships, systems and processes within and by which fiduciary authority is exercised and controlled in corporations.

Corporate Governance regimes differ considerably between countries. In designing a corporate governance regime, 3 issues are particularly relevant (Trickler, 1994)

Board Structure (Two-tier / One-tier)
Board Membership (are employees represented or not)
Board Tasks and Responsibilities

The interest in Corporate Governance is seasonal, it can be said that low stock market levels are conducive for more attention for the governance practices within corporations. A recent example were the high-profile collapses of such firms as Enron and WorldCom and the burst of the Internet Bubble which let to a lot of attention for the topic, especially to Corporate Governance Rating. Critics said however that had Sarbanes-Oxley preceded Enron they probably would have checked the boxes on that too.

Corporate Governance is strongly related to other concepts such as Corporate Transparency, Corporate Accountability, and Corporate Responsibility.

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End of description Corporate Governance. An explanation.

                     
                      └► Bruno (Peru)
                      
                    Principal Agent Problems
                    "Agency Theory is referred to the delegation of work from one party to another. In this sense, the principal delegates work to an agent. In the case of a corporation, the term of principal corresponds to owners and agent to directors. In this case, conflicts of interest can arise such as: the agent misusing his power for pecuniary or other advantage; the agent not taking appropriate risk in pursuance of the principal´s interests due to the dimension of the risk can be different between both; information asymmetry can be another problem due to different levels of information they can have."

                     
                      └► S.Chaturvedi (India)
                      
                    Corridors of Power
                    "Corporate governance could be influenced by the political will and determination of the people in the corridors of the power."

└► Madan Gopal Agarwal (India)	Corporate Governance and Strategy	"Corporate Governance largely depends upon the ethical and moral frame of mind and intention of the person wielding maximum power on board / management of any Organisation. It is reflected in the brand value, prestige, reputation and trustworthiness of the company. Strategy: Corporations can use their brand value for their business advantage by strategizing their track record of corporate governance for everybody wants to do business with respected corporations! "
└► Khumbo Shaba (Malawi)	Good governance brings good results	"For strategy to work well, there is a need of a good reputation of the firm if the firm's products and services are to be highly recognized.. Bad publicity emanating from bad governance can weaken a firm's ability to compete well.. Issues like the environment, shareholder value sustainability; realistic executive pay and many more should form the center stage in good governance projects.."
└► Prakash Rao (India)	Governance	"First is to achieve good results, sustain and improve to raised standards. A governance which is like any Quality Management System ENSURES and maintains CONSISTENCY in company's behavioral pattern to stakeholders."
└► john ohiorenoya (nigeria)	corporate governance	"does corporate governance affect the satisfaction of the workers?"
└► Ali (Nigeria)	Sociocultural Influence on Corporate Governance	"The socio-cultural environment in which managers find themselves affects the proper implementation of corporate governance; a manager who is motivated by bribery will never see the need for corporate governance."