What Are the Types of Corporate Governance?

Corporate governance refers to the structures, practices and procedures an organization employs to ensure accountability and control risk. Its purpose is to give a plan for long-term prosperity, while reducing the possibility of financial losses, waste risks, and corruption.

The primary guiding principles of corporate governance are fairness, diversity, and transparency. These principles stem from the notion that all stakeholders, including shareholders and employees, must be treated fairly and equally by the management and board. This includes establishing, sustaining and setting up a formal and transparent process to select and oversee critical board members and executive members’ performance. Also, it is important to ensure that the remuneration of the top executives and the board is aligned to the long-term interest of the business and ensuring that they have the proper supervision to avoid conflicts of interest.

Transparency is about being transparent and willing to provide accurate information to all stakeholders including shareholders. This means that an organization is willing to make public both good and bad information. This includes sharing information regularly and making it easily accessible.

Depending on the type of business the various committees and boards might play a part in corporate governance. However, it is usually the responsibility of the board to set up and supervise a formal system of governance. If the structure of the board is a combination of the chair and CEO and the CEO, it is also the responsibility of the board to appoint the presiding director or the lead director. The director should be independent of the chair, and should serve with a fixed time. The director who is the lead is accountable for the implementation of governance policies and procedures that align with the corporate’s legal, regulatory and cultural environment.

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