Define corporate governance

The system of rules, practices and processes by which a company is directed and controlled. Corporate governance essentially involves balancing the interests of the many stakeholders in a company; these include its shareholders, management, customers, suppliers, financiers, government and the community. Since corporate governance also provides the framework for attaining a company's objectives, it includes practically every types of management, from action plans and internal controls to performance measurement and corporate disclosure.

While the conventional definition of corporate governance and acknowledges the existence and importance of 'other stakeholders' they still focus on the traditional debate on the relationship between disconnected owners (shareholders) and often self-serving managers. Indeed it has been said, rather ponderously, that corporate governance consists of two elements:

•        The long term relationship which has to deal with checks and balances, incentives for manager and communications between management and investors.

•        The transactional relationship which involves dealing with disclosure and authority.

This implies an adversarial relationship between management and investors, and an attitude of mutual suspicion. This was the basis for much of the rationale of the Cadbury Report, and is one of the reasons why it prescribed in some detail the way in which the board should conduct itself consistency and transparency towards shareholders are its watchwords.

From the definition, corporate governance mainly focuses on the process used to direct and manage the business and affairs of the company with the objectives of striking a balance on:

•        The attainment of the company's objectives.

•        The alignment of corporate behaviour to meet the expectations of shareholders.

•        Accountability and good stewardship, taking into consideration the interests of shareholders, stakeholders, corporate participants and society at large.

Corporate Governance ensures transparency which ensures strong and balanced economic development. This also ensures that the interests of all shareholders (majority as well as minority shareholders) are safeguarded. It ensures that all shareholders fully exercise their rights and that the organization fully recognizes their rights. Corporate Governance has a broad scope. It includes both social and institutional aspects. Corporate Governance encourages a trustworthy, moral, as well as ethical environment.