Corporate governance is a area of complex policy, ethics and practice that has numerous stakeholders. It covers the systems and structures that ensure transparency, accountability, and probity in the reporting and operation of companies. It covers the manner in which boards supervise the executive management of businesses and how they choose to monitor and evaluate the CEO’s page performance. It also covers the manner directors make financial decisions, and how they report these to shareholders.
In the 1990s, corporate governance was the subject of much debate due to the implementation of structural reforms that aimed at creating markets in former Soviet states and the Asian Financial Crisis. The 2002 Enron scandal, followed by a surge of shareholder activism from the institutional sector and the 2008 financial crisis, raised scrutiny. Corporate governance is a hot topic today with new challenges and innovations constantly emerging.
The Anglo-Saxon or “shareholder primacy view” places the primary responsibility on shareholders. Shareholders select the board of directors which is responsible for managing the company and sets strategic goals for the company. The board is accountable for identifying and conducting an evaluation of the CEO, establishing and monitoring the company’s risk management policies, overseeing the operations of the company and submitting reports to shareholders regarding their stewardship.
Integrity as well as transparency, fairness and accountability are the four main principles of effective corporate governance. Integrity is a reflection of the ethical and responsible way board members make decisions. Transparency means transparency and honesty as well as the full disclosure of information to all stakeholders. Fairness is about how boards treat employees, suppliers and customers. Responsibility is how a board behaves towards its own members and the community as a whole.