Types of Corporate Governance

Corporate governance is a nebulous subject of practice, policy and ethics that has many stakeholders. It covers the systems and structures that ensure transparency, accountability and probity in company operations and https://boardroomdirect.blog/what-are-the-four-types-of-corporate-governance/ reporting. It covers the way boards supervise the executive management of an organization and the selection, monitoring and evaluation of the CEO’s performances. It also covers the manner directors make financial decisions, and how they report these to shareholders.

In the 1990s, corporate governance became a hot topic due the introduction of structural reforms that aimed at creating markets in former Soviet countries and the Asian Financial Crisis. The 2002 Enron disaster, which was followed by a surge of shareholder activism in the form of institutional shareholders and the 2008 financial crisis, raised scrutiny. Corporate governance is a hot issue nowadays, with new approaches and pressures constantly emerging.

The Anglo-Saxon or “shareholder first view” places the focus on shareholders. Shareholders select the board of directors which oversees management and sets the strategic goals for the company. The board is accountable for identifying and review the CEO, setting and monitoring enterprise risk management policies, overseeing the operations of the company, and submitting the shareholders with reports on their management.

Effective corporate governance is based on four pillars: integrity, transparency, accountability and fairness. Integrity is the way in the way board members make their decisions. Transparency refers to openness and honesty, as well as full disclosure of material information to all stakeholders. Fairness is a factor in how boards treat their employees, suppliers and customers. Responsibility relates to how a board treats its own members as well as the community in general.