Monday, February 9, 2009

What is Corporate Governance

Corporate governance is a reflection of the company’s culture, policies, relationship with stakeholders, commitment to values and ethical business conduct. In the same spirit, timely and accurate disclosure of information regarding the financial situation, performance, ownership and governance of the company is an important part of corporate governance.
Corporate governance is all about “promoting corporate fairness, transparency and accountability.” This chapter provides some definitions of corporate governance and explains how it differs from corporate management.
It also identifies the various issues that must be addressed by corporate governance. It analyzes various corporate governance models that are adopted in various parts of the world and explains how corporate governance has evolved into its present form.
Corporate Governance when used in the context of business organisations is a system of making directors accountable to share holders for effective management of the companies, in the best interest of the company and shareholders along with concern for ethics and values. It is a management of companies by the board of directors. It hinges on complete transparency, integrity and accountability of management that includes executive and non-executive directors. Its genesis can be traced to the internal audit function and its importance was enhanced after the Stock Market Crash of 1987. With the CG reports of Adrian Cadbury in the United Kingdom, Mervyn King in South Africa and Kumarmangallam Birla in India the subject was reduced to controlling shareholder operations and ensure ethical practices in the financial sector. From thence, it has moved into other areas of the organisation but unfortunately restricts itself to the management and control of funds. The ambit of significance of CG lies far beyond this as has been explained at length in Business Ethics and Corporate Governance: Towards Organisational Excellence (2005).

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