Significance of Good Corporate Governance
Good Corporate Governance Essential to Steering Modern World
A number of authorities have defined “corporate governance” from a macro perspective, such as:-
“….institutionalization of a set of relationships between a company’s management, its board, its shareholders and other stakeholders” – The OECD Principles of Corporate Governance 1999.
“….the system by which business corporations are directed and controlled. Boards of directors are responsible for the governance of their companies” – Cadbury Report 1992.
“….addresses the issues facing boards of directors, such as the interaction with top management, and relationships with the owners and others interested in the affairs of the company.” – Prof Robert I Tricker.
Having made reference to definitions from authorities and for the purpose of facilitating understanding and practice, The Hong Kong Institute of Directors has developed a Statement of Definition for “Corporate Governance”.
The Hong Kong Institute of Directors Statement of Definition for “Corporate Governance”
The aim of corporate governance is to advance owner value through greater efficiency resulting from the accountability of the board and management to owners. Corporate governance refers to the system of policies and procedures established by the board of directors to direct and control the company’s behavior and performance in order to foster the company’s long-term success. Good, performance-driven, governance thus supports wealth creation, which in turn drives more investment and employment. The key is to ensure that the corporate governance agenda is focused on improving conformity and compliance as well as performance.
The role of shareholders in corporate governance is to appoint the directors and the auditors to satisfy themselves that an appropriate governance structure is in place. The board of directors of a company is ultimately responsible for corporate governance and makes the decisions that determine the company’s prosperity and integrity. The board’s actions are subject to laws, regulations and the approval of shareholders in general meetings. Corporate governance applies to all types of companies, covering listed companies, public companies, private companies, statutory organisations and non-profit-distributing organisations. Among non-profit-distributing organisations, shareholders are replaced by members, but the same basic principles and accountability apply.
To fulfill the role in corporate governance, the board of directors is responsible for executing the following functions of direction with skill, care and diligence:-
- Determining the company’s strategic objectives and policies, including but not limited to corporate directions, long-term goals, risk policy, performance targets and business plans.
- Monitoring the progress of the management in the achievement of objectives, compliance of legal and regulatory stipulations and conformity to corporate policies.
- Appointing the company’s top management and evaluating its work performance.
- Monitoring and managing potential conflicts of interest of management, board members and shareholders.
- Giving an account of the company’s activities to the parties to whom an account is properly due and ensuring the integrity of financial accounting and corporate reporting.
HKIoD website www.hkiod.com
The HKIoD Guidelines for Directors.
The HKIoD Guidelines on Corporate Governance for SMEs in Hong Kong.
The HKIoD SME Corporate Governance Toolkit – From Guidelines to Implementation.
Report on the HKIoD Corporate Governance Score-card
The HKIoD Training Courses on The Role of Company Directors I – Legal and Regulatory Framework and
The Role of Company Directors II – Board Practices.