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What Are the Types of Corporate Governance?
Corporate governance is the collection of practices, structures, and processes that a business employs to manage risk and ensure accountability. Its purpose is to offer a model for long-term success, while reducing the potential for loss of money, waste, risks and corruption.
The fundamental guiding principles of corporate governance are fairness, diversity and transparency. These principles are derived from the notion that the board and management must treat all stakeholders equally and fairly, which includes staff and shareholders. This means establishing, sustaining and implementing a formal, transparent process to select, oversee and monitor key executive and board members their performance. This also includes ensuring that the compensation of the most important executives and board is aligned with the long-term goals of the company and providing the required supervision to avoid conflicts of interests.
Transparency is about being open and willingly sharing accurate information with all stakeholders including shareholders. This includes the company’s willingness to make public both good and bad information. It also means communicating this information on a regular basis and making it easy to access.
Depending on the nature of the company, different boards and comittees could have a role to play in corporate governance. However, it is typically the responsibility of the board to set up and oversee a formal process for governance. This includes appointing the lead or presiding director if the board structure is one in which the chair and CEO are joined. It is a director who is independent of the chair and be appointed for a term set by the board. The lead director is also accountable for the implementation of governance policies and procedures in accordance with the company’s legal, regulatory and cultural environment.
