What is corporate governance?

Corporate Governance is more than just restoring or maintaining (public) confidence in a company; it’s about organizations making better decisions.

A few months ago I was in touch with a former colleague who I greatly admire – not only for his excellent management skills but also for the person that he is – kind, generous, honest and down to earth. We were talking about my consulting business and he asked me: “what is corporate governance”?

I realized that while many people (including very smart and skilled managers) might know that corporate governance relates to managing a corporation, they might not know exactly what it means. And it got me thinking that if more people know about corporate governance it might influence a shift towards creating more responsible and relevant organizations – especially those companies that we interact with as investors, employees, consumers, partners, etc.

Corporate governance to me, as a consultant, means helping boards (board of directors) make better decisions. It is a framework and a practice (within that framework) that ensures that corporate decisions benefit all stakeholders.

It is said that the introduction of the Sarbanes-Oxley Act in the US in 2002 ushered in a (renewed) interest in corporate governance because it was seen as a way to restore confidence in a “system”.

There is no doubt that corporate governance is a balancing act; organizations are good corporate citizens when they are not just concerned with profit but also short, medium and long term effects of their actions on the environment, community and their investors (including employees, suppliers, government etc.) It’s as much about PR as it is about internal controls, disclosure and performance management and compensation. For example, executive pay and benefits is a corporate governance issue if bonuses are tied to making short term decisions that could harm the organization. Such issues are kept in check by having an oversight committee or board of directors that examines executive actions, pay and risk.

So what does corporate governance mean to you? To me it means making sure that different voices are heard and that key decisions are not biased towards just making money or keeping a special interest group quiet. Corporate governance means that key decisions are made by taking into consideration different stakeholders in order to support the well-being of the entire organization.

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One thought on “What is corporate governance?

  1. […] whether your company operates internationally or locally. It’s about making sure that members of your board represent the diversity and dynamic characteristics of your company, stakeholders and market. Local […]

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