Corporate governance is a complex area of policy, practice and ethics that has many stakeholders. It covers the systems and structures which assure transparency, accountability, and integrity in company operations and reports. It also covers the way in that boards oversee the executive management of a business and the way they select to monitor and evaluate the CEO’s performance. It also includes the way directors make financial choices and how they communicate their decisions to shareholders.
Corporate Governance became a subject of heated debate in the 1990s, after the introduction of structural reforms to build markets in former Soviet states and the Asian financial crisis. The Enron scandal of 2002, which was followed by institutional shareholder activism, and the financial crisis of 2008 has led to increased scrutiny. Corporate governance is a hot issue nowadays, with new approaches and pressures constantly surfacing.
The Anglo-Saxon or «shareholder primary view» places the priority on shareholders. Shareholders elect a Board of directors who oversee management and sets business’s strategic goals. The board has the responsibility to select and evaluate the CEO, set and monitor the enterprise policies on risk management and oversee the company’s operation. They also submit reports on their management to shareholders.
Integrity honesty, transparency, fairness and accountability are the four pillars of effective corporate governance. Integrity is the method by the way board members make their decisions. Transparency refers to openness, honesty and full disclosure of material information to all stakeholders. Fairness refers to how boards treat employees, suppliers, and clients. Responsibility relates to how the board treats its own members as well as the community in general.