(a) Corporate governance refers to the way in which companies are run and operated with the stated aim that they are run effectively and properly and are not subject to mismanagement, as has unfortunately been the case in regard to some notorious cases in the fairly recent past. Corporate governance has been defined as the system through which business corporations are directed and controlled. The corporate governance structure relates to the distribution of rights and responsibilities among different participants in the organisation, such as the board, managers, shareholders and other stakeholders, and lays down the procedures for decision-making in relation to corporate affairs. Corporate governance also provides, not only the structure through which the company objectives are set, but also the means through which those objectives are achieved and the process of monitoring the company’s performance in the pursuit of those objectives.
According to the UK Corporate Governance Code, ‘the purpose of corporate governance is to facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of the company’ and the classic definition of corporate governance is: ‘... (T)he system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place. The responsibilities of the board include setting the company’s strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship. The board’s actions are subject to laws, regulations and the shareholders in general meeting.’
Corporate governance is therefore about what the board of a company does and how it sets the values of the company, and is to be distinguished from the day to day operational management of the company by fulltime executives.’ |
