Corporate governance is a complex subject of practice, policy and ethics that has many stakeholders. It includes the systems and structures which ensure transparency, accountability and probity in company operations and reports. It encompasses the method by that boards oversee the executive management of businesses, and how they select, monitor and evaluate the performance of the CEO. It also includes the method by which directors make financial choices and how they communicate those decisions to shareholders.
In the 1990s, corporate governance was a hot topic due the implementation of structural reforms that aimed at creating markets in former Soviet states and the Asian Financial Crisis. The Enron scandal of 2002, followed by the activism of institutional shareholders, and the financial crisis of 2008 brought increased scrutiny. Corporate governance remains an issue of great interest today with new pressures and new ideas constantly emerging.
The prevailing school of thought, also known as the “shareholder supremacy” view or Anglo-Saxon method, places a higher priority on shareholders. Shareholders elect a Board of directors that directs management and sets business’s strategic goals. The board is responsible what are the four types of corporate governance for selecting and conducting an evaluation of the CEO, establishing and monitoring the company’s risk management policies, overseeing the operations of the company and submitting annual reports to shareholders on their stewardship.
Integrity and transparency, fairness, and responsibility are the four core principles of effective corporate governance. Integrity is the ethical and responsible way in which board members make decisions. Transparency is the term used to describe openness honest, integrity, and complete public disclosure of information to all stakeholders. Fairness is a factor in how boards treat their employees as well as their suppliers and customers. Responsibility relates to how the board treats its members as well as the community as a whole.