Governance

Governance / Corporate Governance

Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. In contemporary business corporations, the main external stakeholder groups are shareholders, debtholders, trade creditors, suppliers, customers and communities affected by the corporations activities. Internal stakeholders are the board of directors, executives, and other employees.

The latin verb gubernare (to steer) and noun gubernator (helmsman of a ship) are early etymological references. They convey the essential qualities recognised in modern governance of how an entity is directed and steered.

“The word ‘governance’ comes from the old French word ‘gouvernance” and means control and the state of being governed. According to the Oxford English Dictionary, it also means good order. Thus we have the etymology of the word a useful metaphor – the idea of steering or captaining a ship. We have references to control and also to good order, which is more than simply being on course: it is also being shipshape and in good condition.”

Corporate Governance OUP Farrar 2 ed. p3

“Good governance is the effective separation, management and execution of the relationships, duties, obligations and accountabilities of an entity, such that the entity is best able to fulfil its purpose. Thus good governance exists to add value.”

BPS 2005/1 The Role of the Board in Adding Value

Corporate governance is a multi-faceted subject. An important theme of corporate governance is the nature and extent of accountability of particular individuals in the organization, and mechanisms that try to reduce or eliminate the principal-agent problem. A related but separate thread of discussions focuses on the impact of a corporate governance system on economic efficiency, with a strong emphasis on shareholders’ welfare; this aspect is particularly present in contemporary public debates and developments in regulatory policy (see regulation and policy regulation).

There has been renewed interest in the corporate governance practices of modern corporations since 2001, particularly due to the high-profile collapses of a number of large corporations, most of which involved accounting fraud. In the U.S., these include Enron Corporation and MCI Inc. (formerly WorldCom). Their demise is associated with the U.S. federal government passing the Sarbanes-Oxley Act in 2002, intending to restore public confidence in corporate governance. Comparable failures in Australia (HIH, One.Tel) are associated with the eventual passage of the CLERP 9 reforms. Similar corporate failures in other countries associated stimulated increased regulatory interest (e.g., Parmalat in Italy). Corporate scandals of various forms have maintained public and political interest in the regulation of corporate governance.

Source – Wikipedia & Iod

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