Corporate governance involves risk management and internal control, accountability to stakeholders and conducting business in an effective and ethical way.
By definition, corporate governance is the system by which organizations are directed and controlled, nowadays, more and more companies put more efforts on the corporate governance. Here there are several key elements in corporate governance:
Good governance provides a framework for an organization to pursue its strategy in an ethical and effective way from the perspective of all stakeholder group affected, and offers safeguards against misuse of resources, physical or intellectual. The stakeholder groups include customers, suppliers, shareholders, employees and other interested parties. They want to cooperate with or work for a company which is ethical and socially responsible.
The management and reduction of risk is a fundamental issue in all definitions of good governance. Risk management should be embedded into company’s culture and become everyday’s work, risk may not be eliminated entirely, and it could only be reduced to some extent. Meanwhile, risk may change significantly when environment changes.
Corporate governance codes of good practice generally cover the following areas:
The board should be responsible for taking major policy and strategic decisions; directors should have a mix of skills and their performance should be assessed regularly; appointments should be conducted by formal procedures administered by a nomination committee; audit committees of independent non-executive directors should liaise with external audit, supervise internal audit, and review the annual accounts and internal controls; the board should maintain a regular dialogue with shareholders, particularly institutional shareholders. The annual general meeting is the most significant forum for communication; annual reports must convey a fair and balanced view of the organization. They should state whether the organization has complied with governance regulations and codes and give specific disclosures about the board, internal control reviews, going concern status and relations with stakeholders.
