Corporate governance is a subject of complex policy, ethics and practice that involves numerous stakeholders. It encompasses the systems and structures that guarantee transparency, accountability and probity in reporting and operations of a company. It encompasses the method by directors oversee executive management of businesses and the way they select, monitor and evaluate the performance of the CEO. It also covers the manner in which directors make financial choices and how they communicate these decisions to shareholders.
In the 1990s, corporate governance became a hot topic due the implementation of structural reforms to build markets in former Soviet countries and the Asian Financial Crisis. The 2002 Enron scandal, then a wave of institutional shareholder activism and the 2008 financial crisis, increased scrutiny. Corporate governance is an ongoing topic with new pressures and innovations constantly emerging.
The Anglo-Saxon or “shareholder prioritization view” places the primary responsibility on shareholders. Shareholders elect a board of directors that directs management and sets the strategic goals for the company. The board is responsible for selecting and review the CEO, setting and evaluating enterprise policies on risk management, supervising the operations of the company, and submitting the shareholders with reports on their stewardship.
Integrity and transparency, fairness, and responsibility are the four main principles of effective corporate governance. Integrity is a reflection of the ethical and responsible way in which board members make decisions. Transparency is about transparency and honesty as well as complete disclosure of important information to all stakeholders. Fairness refers to how boards deal with employees, suppliers and clients. Responsibility relates to how the board treats its own members and the entire community.