Corporate governance in the business context refers to the systems of rules, practices and processes by which companies are governed. In this way, the corporate governance model followed by a specific company is the distribution of rights and responsibilities by all participants in the organization. Corporate governance is the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies.
The role of shareholders in government is to appoint directors and auditors and to ensure that an appropriate governance structure is in place. Corporate governance is a set of regulations, policies and procedures that control the operation of an organization. It defines the role of the Board of Directors, its composition, the role of the president, the role of the CEO, risk management strategies, control mechanisms and action plans. It is rare to hear about companies with good corporate governance because it is good corporate governance that keeps them out of the news, since there has been no scandal.
Image credits for Shutterstock about entrepreneurs, stakeholders in corporate governance, sustainable governance and corporate governance businesses. What happened at Enron was clearly a lack of corporate governance that should have prevented the creation of these entities that concealed losses. One of the interesting developments in recent years has been the way in which the label of “corporate” governance has been used to describe governance and accountability issues beyond the corporate sector. In companies with this type of governance structure, where there may be many shareholders, it is common to hear about agency or management theory.
It's common to hear about bad examples of corporate governance, mainly because it's the reason why some companies exploit and end up in the news. For example, corporate governance became a pressing issue in the United States in the early 21st century, after fraudulent practices bankrupted high-profile companies such as Enron and WorldCom. Everyone in a company, from core staff to board members, must be well-versed in corporate security procedures, such as passwords and authentication methods. It is a management and control system that dictates how a board of directors governs and supervises a company.
The supervisory board was intended to oversee management and approve corporate decisions; however, it lacked the independence and authority to carry out these functions. Strong and transparent corporate governance leads a company to make ethical decisions that benefit all its stakeholders, allowing the company to position itself as an attractive option for investors if its finances are also healthy. The board of directors must ensure that the company's corporate governance policies incorporate corporate strategy, risk management, accountability, transparency and ethical business practices. There are certain areas that an investor can focus on to determine if a company is practicing good corporate governance or not.
Alternatively, bad corporate governance is considered poorly structured, ambiguous and non-compliant, which could damage the image or financial health of a company.