Who is responsible for governance of a corporation

Log in and interact with engaging content: show how they matter to you, share your experience First Name. Last Name. Definitions of Corporate Governance in Business Simple Definition of Corporate Governance in Business Corporate governance in the business context refers to the systems of rules, practices, and processes by which companies are governed.

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It is concerned with practices and procedures for trying to make sure that a company is run in such a way that it achieves its objectives, while ensuring that stakeholders can have confidence that their trust in that company is well founded. Read more about the benefits of corporate governance and browse through the corporate governance course available at London TFE.

Business Resilience. Who is responsible for Corporate Governance? Back To Top. Related articles 23rd January, Tangible benefits of a corporate governance framework.

Proxy advisors and shareholders are important stakeholders who indirectly affect governance, but these are not examples of governance itself. The board of directors is pivotal in governance, and it can have major ramifications for equity valuation. Good corporate governance helps companies build trust with investors and the community. As a result, corporate governance helps promote financial viability by creating a long-term investment opportunity for market participants.

Communicating a firm's corporate governance is a key component of community and investor relations. On Apple Inc. Most companies strive to have a high level of corporate governance.

For many shareholders, it is not enough for a company to merely be profitable; it also needs to demonstrate good corporate citizenship through environmental awareness, ethical behavior, and sound corporate governance practices.

Good corporate governance creates a transparent set of rules and controls in which shareholders, directors, and officers have aligned incentives. The board of directors is the primary direct stakeholder influencing corporate governance. Directors are elected by shareholders or appointed by other board members, and they represent shareholders of the company.

The board is tasked with making important decisions, such as corporate officer appointments, executive compensation, and dividend policy. In some instances, board obligations stretch beyond financial optimization, as when shareholder resolutions call for certain social or environmental concerns to be prioritized.

A board of directors should consist of a diverse group of individuals, those that have skills and knowledge of the business, as well as those who can bring a fresh perspective from outside of the company and industry.

Boards are often made up of inside and independent members. Insiders are major shareholders, founders, and executives. Independent directors do not share the ties of the insiders, but they are chosen because of their experience managing or directing other large companies. Independents are considered helpful for governance because they dilute the concentration of power and help align shareholder interests with those of the insiders.

The board of directors must ensure that the company's corporate governance policies incorporate the corporate strategy, risk management, accountability, transparency, and ethical business practices. Bad corporate governance can cast doubt on a company's reliability, integrity, or obligation to shareholders; all of which can have implications on the firm's financial health.

Tolerance or support of illegal activities can create scandals like the one that rocked Volkswagen AG starting in September The development of the details of "Dieselgate" as the affair came to be known revealed that for years the automaker had deliberately and systematically rigged engine emission equipment in its cars in order to manipulate pollution test results in America and Europe. Volkswagen saw its stock shed nearly half its value in the days following the start of the scandal, and its global sales in the first full month following the news fell 4.

VW's board structure was a reason for how the emissions rigging took place and was not caught earlier. In contrast to a one-tier board system that is common in most companies, VW has a two-tier board system, which consists of a management board and a supervisory board.

The supervisory board was meant to monitor management and approve corporate decisions; however, it lacked the independence and authority to be able to carry out these roles.

The supervisory board comprised a large portion of shareholders. Ninety percent of shareholder voting rights were controlled by members of the supervisory board. There was no real independent supervisor; shareholders were in control of the supervisory board, which canceled out the purpose of the supervisory board, which was to oversee management and employees and how they operate within the company, which of course, included rigging emissions.

Public and government concern about corporate governance tends to wax and wane.