Types of Corporate Governance

Corporate governance is an area of complex policy, ethics and practice that is involving numerous stakeholders. It covers the structures and systems that ensure accountability, transparency and integrity in company operations and reports. It covers the way boards supervise the executive management of an enterprise, and the selection, monitoring and evaluation of the CEO’s performance. It also includes the way directors make financial decisions and how they communicate their decisions to shareholders.

Corporate Governance became a subject of heated debate in the 1990s, as a result of structural reforms that helped build markets in former Soviet countries as www.boardroomdirect.blog/the-most-useful-checklist-for-board-meetings well as the Asian financial crisis. The 2002 Enron debacle, followed by a surge of shareholder activism from the institutional sector and the 2008 financial crisis, heightened scrutiny. Corporate governance is in the spotlight today with new challenges and new innovations constantly appearing.

The most popular school of thought, commonly referred to as the “shareholder supremacy” view or Anglo-Saxon method, places a higher priority on shareholders. Shareholders choose the board of directors, which directs management and establishes the strategic objectives for the company. The board is responsible for deciding on and conducting an evaluation of the CEO, establishing and monitoring enterprise risk management policies, overseeing the operations of the company, and submitting reports to shareholders regarding their management.

Effective corporate governance is based on four principles that are integrity, transparency, fairness and responsibility. Integrity is the ethical and responsible manner in which board members make decisions. Transparency means openness and honesty as well as the full disclosure of material information to all stakeholders. Fairness is the way boards treat employees, suppliers and customers. Responsibility relates to how the board treats its own members and the community as a whole.

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