Types of Corporate Governance

Corporate governance is a subject of complex ethics, policy and practice that is involving numerous stakeholders. It encapsulates the systems and structures which ensure transparency, accountability and integrity in company operations and reports. It includes the manner in which boards oversee the executives of a business, and the selection, monitoring and evaluation of the CEO’s performance. It also entails the way in which directors make financial decisions, and how they report these to shareholders.

In the 1990s, corporate governance became a hot topic due the implementation of structural reforms aimed at establishing markets in former Soviet countries and the Asian Financial Crisis. The Enron scandal of 2002, followed by shareholder activism in the form of institutional shareholders and the 2008 financial crisis brought increased scrutiny. Corporate governance is a hot topic today, with new developments and pressures constantly surfacing.

The Anglo-Saxon or “shareholder primacy view” places the priority on shareholders. Shareholders elect a Board of directors who oversee management and sets the strategic goals of the company. The board has the responsibility to select and evaluate the CEO, create and oversee enterprise policies regarding risk management and supervise the operations of the business. They also present reports on their stewardship to shareholders.

Effective corporate governance focuses on four pillars that are integrity, transparency, accountability and fairness. Integrity is how in which board members take decisions. Transparency refers to openness and honesty as well as the full disclosure of all information to all stakeholders. Fairness refers to how boards treat their employees customers, suppliers, and employees. Responsibility is how the board treats its members and the community in general.

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