What is corporate governance? Why is corporate governance a central concern for corporations that are pursuing the social responsibility approach? How does it improve or change the nature of executive and managerial decision making?
Corporate Governance
The OECD defined 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 are determined.”
Corporate governance (CG) plays an important role for companies that are pursuing the social responsibility approach. The notion of social responsibility presumes that the business has not only economic and legal commitments, but also certain obligations to society, whichencompass areas beyond these responsibilities (Carroll &Buckholtz, 2012). Concurring to Solomon (2009, p.7), CG is an arrangement of monitoring and control, both internal and external to corporations, which guarantees that corporation emancipates their culpability to all of their stakeholders and perform with a socially responsible approach in all parts of their industry endeavours. In the broader framework of CG, its likewise clear that upright governance involves duty and due respect to the desires of all significant stakeholders (Kendall, 1999) furthermore guaranteeing corporations are accountable to all stakeholders (Dunlop, 1998).
CG describes the laws, policies, and agreements that administer corporations’ processes, and guaranteeing that shareholder entitlements are well protected, stakeholder and managers interests are resolved, and that a trustworthy environment is sustained where in both the parties are able to undertake its obligations and be conducive to the business’s development and value formation. This will lead to progress and will transform the nature of managerial and executive policymaking.
What is the role of the board of directors in corporate governance? What responsibility does the board have?
The role of the board of directors:
Approximatelyall corporations are governed by a board of directors, nominated or elected by the shareholders to run the business on their behalf. In almost all countries, the directors are subjected to periodic (often annual) reappointment by the shareholders. The role of the board of directors was recapitulated as:
- Todelineate the purpose of the business
- Todescribe the values by which the business will execute its daily responsibilities
- To classify the stakeholders pertinent to the business
- To design a strategy uniting these factors
- Toguaranteeexecution of this strategy
The responsibility of the board of directors:
To prioritise the responsibility, the foremost obligation of the executives is to keep checks and balances on the affairs of the business in order achieve profit for the stockholders. The BODs agrees that routine administration regarding the Business is the liability of the organization’s managerial staff and the function that Board performs is to supervise executive’s efficiency to perform that task. The Board in addition shall also decree and manage an enterprise compliance program, which shall comprise of the formation of a Corporation Code of Corporate Conduct and Ethics, the continuation of bookkeeping, fiscal and various business related functions, and the evaluating the pertinence of these functions in the business management.