Corporate governance is a multi-faceted concept that has no clear meaning-the narrow view sees “governance” as a fancy word defining how directors and auditors treat their duties towards creditors and shareholders, whereas the broader view sees corporate governance as the partnership between a corporation and community, sometimes contrasting corporate governance with corporate social responsibility. Do you want to learn more? Visit stakeholder theory of corporate governance
Broadly speaking, corporate governance relates to the mechanism of checks and balances between the board of directors, management and creditors to create an entity that operates effectively and can generate long-term value. It explains what the directors board will do to understand what is actually going on within the company.
The concept of corporate governance by the Organisation for Economic Co-operation and Growth (OECD) is generally accepted: “Corporate governance is the mechanism under which companies are guided and regulated. The corporate governance framework defines the allocation of rights and obligations to different corporate members, such as the board, management, shareholder, etc.
Although the primary accountability for corporate governance concerns within an entity rests with the board of directors whose primary duty is to consider and authorize the company’s risk-taking at every point of its growth, the CEO has a crucial position to play of maintaining enforcement at the job level. He and other senior executives ought to set the tone and insure that board leaders engage constructively in truthful and meaningful debates.
CEOs should provide the non-executive directors with a supportive forum by holding daily sessions with them during which the CEO and other executives are exempt. It is anticipated that non-executive directors may share their opinions on how the company is run. They need to discuss and share their opinions on the success of the leadership, including the company’s strategic strategy and share their questions on how they feel about the quality of knowledge. Companies who do not have non-executive representatives on their board, e.g. family company, should suggest hiring some seriously.
CEOs can gain the respect and trust of all stakeholders by describing in depth what assumptions were used while compiling the balance sheets, particularly the earnings and income figures. Particularly when it comes to non-tangible assets such as the company identity, decisions may be taken on what goes on or off the balance sheet.
Furthermore, the CEO and his senior management team should facilitate and promote risk-appetite assessments of non-executives, because the cause for loss can be traced to weak risk management decisions in other businesses. It is important for non-executive directors to grasp the risk-taking strategy of the organization and to be able to share their opinions on any deviation from such a strategy.