Cross-Cutting Issues In Corporate Governance
Posted on Thu 24 Mar 2016
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The Organisation for Economic Co-operation and Development (“OECD”), in its September 2015 publication, the “Joint G20/OECD Corporate Governance Principles” (OECD CG Principles), provides that; “Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance”.
It is common knowledge that the institution and implementation of a good CGC is driven by the Board of Directors (“the board”) of a company or an organization. Many believe that the management of organizations cannot be trusted to do justice to the various interests of its stakeholders. Consequently there must be a functional, ethical and effective board that establishes and enforces an ethical corporate culture for the organization. This explains why properly governed companies attract quality investors and countries with effective and well regulated corporate governance codes have stronger economies.
In an “Investor Opinion Survey on Corporate Governance”, carried out in June 2000 by McKinsey & Co., “over 80 percent of investors say they would pay more for the shares of a well-governed company than for those of a poorly governed company; with comparable financial performance”. Evan Harvey, the Director of Corporate Responsibility at NASDAQ, also in a similar vein wrote in the 17 January 2016 Issue of Ethical Boardroom (a reputable London-based online global corporate governance magazine) that, “members of company boards have a responsibility to formulate and direct policy that addresses key risks, including the very important one of potential reputational damage.”
Therefore, the fundamentals of a corporate governance regime are: institution of a corporate culture for an organization; setting of corporate goals/mission and the mechanism for achieving them; balancing the various stakeholder-interests; incentivizing quality performance, encouraging compliance and building outstanding reputation; protecting the value system and engendering long-term sustainability; as well as enthroning good government in the top echelons of the corporate leadership of the organization.