Types of Corporate Governance

Corporate governance is a area that is a complex area of ethics, policy and practice that is involving a wide range of stakeholders. It covers the structures and systems that ensure transparency, accountability and probity in company operations and reports. It encompasses the way boards supervise the executive management of a company, and the selection, monitoring and evaluation of the CEO’s performances. It also encompasses the manner in which directors make financial decisions and communicate these to shareholders.

Corporate Governance became the subject of heated debate in the 1990s due to the introduction of structural reforms to build markets in former soviet countries and the Asian financial crisis. The 2002 Enron debacle, then a wave of institutional shareholder activism and the 2008 financial crisis heightened scrutiny. Corporate governance is a hot topic today, with new innovations and challenges constantly emerging.

The most popular school of thought, commonly referred to as the “shareholder primacy” view or Anglo-Saxon approach, places priority on shareholders. Shareholders elect a Board of directors who oversee management and establishes the strategic goals for the company. The board is accountable for identifying and review the CEO, setting and monitoring enterprise risk management policies, overseeing the operations of the company and submitting annual reports to shareholders on their management.

Integrity, transparency, fairness, and accountability are the four fundamental principles of a successful corporate governance. Integrity is a reflection of the ethical and responsible manner in which board members make decisions. Transparency refers to openness, honesty and complete disclosure of information to all stakeholders. Fairness is the way boards treat their employees, suppliers and customers. Responsibility relates to how the board treats its members as well as the community as a whole.

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