Corporate governance is about making your business work better while abiding by the rules. Good management is, of course, critical for the operation of a company. But managers need direction in order to prioritise operations and to allocate funds. It is the board of directors that is the principal agent for corporate governance: The board is given a mission by shareholders, translates that mission into specific elements of strategy, and then provides direction for management, which makes it all happen.
Successful and sustainable businesses underpin our economy and society by providing employment and creating prosperity. To succeed in the long-term, directors and the companies they lead need to build and maintain successful relationships with a wide range of stakeholders.
These relationships will be successful and enduring if they are based on respect, trust and mutual benefit. Bad things happen when corporate governance is ignored. We all know the example of Sports Direct , a UK company in which the board just ignored all the corporate governance safeguards that good businesses should take into account, and whose board attempted to avoid all responsibility as the company plunged into failure.
Read more here. Corporate governance arrangements and institutions vary from one country to another, and experience in both developed and emerging economies has shown that there is no single framework that is appropriate for all markets, so the Principles are not prescriptive or binding, but rather take the form of recommendations that each country can respond to as best befits its own traditions and market conditions.
Since , they have been widely adopted as a benchmark for good practice in corporate governance: they are used as one of 12 key standards by the Financial Stability Forum for ensuring international financial stability and by the World Bank in its work to improve corporate governance in emerging markets. Since the Principles were first published, however, a spate of corporate scandals has undermined the confidence of investors in financial markets and company boards.
In , OECD governments called for a review of the Principles to take account of these developments. The revised text is the product of a consultation process involving OECD members and representatives from the OECD and non-OECD areas including businesses and professional bodies, trade unions, civil society organisations and international standard-setting bodies.
They are designed to assist policy makers in both developed and emerging markets in improving corporate governance in their jurisdictions, as a vital step in rebuilding public trust in companies and financial markets. The new Principles call for a stronger role for shareholders in a number of important areas, including executive remuneration and the appointment of board members. They call on companies to make sure that they have mechanisms to address possible conflicts of interest, to recognise and safeguard the rights of stakeholders and a framework in which internal complaints can be heard, with adequate protection for individual whistleblowers.
They stress the responsibilities of auditors to shareholders and the need for institutional investors acting in a fiduciary capacity such as pension funds and collective investment schemes to be transparent and open about how they exercise their ownership rights. For board members, this means fostering the best interests of the company and the shareholders who have invested their money in the company which they oversee.
But it also involves establishing productive relationships with other stakeholders such as employees and balancing their interests with others. In almost all developed economies, investors have fairly extensive legal rights. In practice, however, their ability to exercise them is often restricted.
More open board elections would enable shareholders to exercise their ownership rights in an effective manner. Shareholders need to be able to pose questions to the board and to put forward proposals to the general meeting of shareholders.
Why is corporate governance so important and how can business implement good corporate governance? It is the framework that defines the relationship between shareholders, management, the Board of Directors and other key stakeholders. Corporate governance policies need to be enforceable and applied consistently.
Good corporate governance fosters a culture of integrity and leads to a positive performing and sustainable business. Good governance signals to the market that an organisation is well managed and that the interests of management are aligned with other stakeholders. As such, it can provide businesses with a competitive advantage. The Board of Directors plays a vital role in the development of corporate governance policies.
It needs to engage with the management of the business to provide clarity of strategic purpose. Shareholders also play an important role in governance as they need to ensure the right directors are appointed to their Board. Good corporate governance can be difficult to implement in totality, but ten aspects to consider include:. For small to medium businesses, a full Board of Directors and corporate governance regulation are often not necessary, nonetheless some corporate governance should be in place.
On Apple Inc. Most companies strive to have a high level of corporate governance. For many shareholders, it is not enough for a company to merely be profitable; it also needs to demonstrate good corporate citizenship through environmental awareness, ethical behavior, and sound corporate governance practices. Good corporate governance creates a transparent set of rules and controls in which shareholders, directors, and officers have aligned incentives.
The board of directors is the primary direct stakeholder influencing corporate governance. Directors are elected by shareholders or appointed by other board members, and they represent shareholders of the company. The board is tasked with making important decisions, such as corporate officer appointments, executive compensation, and dividend policy. In some instances, board obligations stretch beyond financial optimization, as when shareholder resolutions call for certain social or environmental concerns to be prioritized.
A board of directors should consist of a diverse group of individuals, those that have skills and knowledge of the business, as well as those who can bring a fresh perspective from outside of the company and industry. Boards are often made up of inside and independent members.
Insiders are major shareholders, founders, and executives. Independent directors do not share the ties of the insiders, but they are chosen because of their experience managing or directing other large companies. Independents are considered helpful for governance because they dilute the concentration of power and help align shareholder interests with those of the insiders. The board of directors must ensure that the company's corporate governance policies incorporate the corporate strategy, risk management, accountability, transparency, and ethical business practices.
Bad corporate governance can cast doubt on a company's reliability, integrity, or obligation to shareholders; all of which can have implications on the firm's financial health. Tolerance or support of illegal activities can create scandals like the one that rocked Volkswagen AG starting in September The development of the details of "Dieselgate" as the affair came to be known revealed that for years the automaker had deliberately and systematically rigged engine emission equipment in its cars in order to manipulate pollution test results in America and Europe.
Volkswagen saw its stock shed nearly half its value in the days following the start of the scandal, and its global sales in the first full month following the news fell 4. VW's board structure was a reason for how the emissions rigging took place and was not caught earlier. In contrast to a one-tier board system that is common in most companies, VW has a two-tier board system, which consists of a management board and a supervisory board.
The supervisory board was meant to monitor management and approve corporate decisions; however, it lacked the independence and authority to be able to carry out these roles. The supervisory board comprised a large portion of shareholders. Ninety percent of shareholder voting rights were controlled by members of the supervisory board. There was no real independent supervisor; shareholders were in control of the supervisory board, which canceled out the purpose of the supervisory board, which was to oversee management and employees and how they operate within the company, which of course, included rigging emissions.
Public and government concern about corporate governance tends to wax and wane. Often, however, highly publicized revelations of corporate malfeasance revive interest in the subject. For example, corporate governance became a pressing issue in the United States at the turn of the 21st century, after fraudulent practices bankrupted high-profile companies such as Enron and WorldCom.
The problem with Enron was that its board of directors waived many rules related to conflicts of interest by allowing the chief financial officer CFO , Andrew Fastow, to create independent, private partnerships to do business with Enron. What actually happened was that these private partnerships were used to hide Enron's debts and liabilities, which would have reduced the company's profits significantly. What happened at Enron was clearly a lack of corporate governance that should have prevented the creation of these entities that hid the losses.
0コメント