Glossary term
Corporate Governance
Subject: Governance, Corporate Governance
Corporate governance is the set of rules, structures and habits that decide who steers a company and how those in charge are questioned, covering the board, management, shareholders and other stakeholders.
Explanation
Management runs the business. Governance decides who may direct management, how the board is chosen, what shareholders and others can expect, and how information reaches those who need it. Its parts include the board and its committees, internal control and audit, disclosure, shareholder rights, and the codes and laws that set minimum standards. A governance and oversight framework is the firm's own written version: who decides what, how oversight is organised and how performance, risk and compliance are reported upwards. Models differ between countries, from shareholder-focused to those giving employees or banks a larger role, and between widely held and family-controlled companies. Lenders, investors and staff commit to a company more readily when they believe it is directed with integrity and answers for results.
Example
A family-owned manufacturer plans to list on the stock market. Investors ask how decisions are made. The company adds independent directors, creates an audit committee, writes a board charter, publishes related-party dealings and sets a policy on executive pay. The changes show outside shareholders that the founder's views will not override proper process.
Not to be confused with
- Management
- Management runs the business day to day. Governance sets direction, oversees management and holds it to account.