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Posts Tagged ‘Explain the Concept of Corporate Governance’

The term “corporate governance” describes an incredibly broad, multifaceted concept. It includes the systems, procedures and structure a corporation uses to convey authority, responsibility and accountability among stakeholders.

Good corporate governance balances the interests of, and relationships between, a company’s employees, owners and customers to ensure the long-term sustainability and success of a corporate venture.

Laws and Regulations

One of the primary aspects of corporate governance is company compliance with all applicable federal and state legal regulations. Corporations must adhere to a set of strict, comprehensive laws administered by national and local governments.

These laws shape the structure of a corporation’s corporate governance before it even begins to operate. All corporations, for example, are required to hold annual shareholder meetings, report income and justify its use of assets.

Interests of Stakeholders

The stakeholders of a corporation are employees, customers, creditors and owners. Each of these individuals or organizations have invested assets into the corporation.

Corporate governance describes how a corporation meets the interests of each of these stakeholders without compromising the overall integrity of the company or neglecting obligations to other stakeholders.

Ownership

The owners of a corporation are called shareholders. They are primary stakeholders in the company. The success of their investment in the corporation is directly dependent on the success and sustainability of a corporation’s actions and decisions.

Shareholders meet annually to elect members of a board of directors who act as their fiduciaries in the context of their investment in the company. Shareholders to not play a role in the company’s operations or development.

This “disconnect” between the owners of a corporation and the company itself is one of the most critical aspects of corporate governance. Good corporate governance includes a healthy, transparent relationship between the owners, the board and the company’s operations.

Board of Directors

The board of directors in a corporation serve as the central body in the corporate governance structure. Board members oversee the budget and operations of a company. They are duty-bound to analyze and report this information to shareholders honestly and accurately.

The board appoints high level management officials for the corporation. These officials have a great deal of authority and responsibility, and can ultimately determine the success or failure of a company.

The board is the primary conductor of corporate governance. They are the bridge between the owners and employees of a company. They make the strategic, long-term decisions that shape a corporation’s structure and integrity. Read the rest of this entry »