Corporate Governance: Internal Relations Between Managements (Essay Sample)

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8/5/2015
Corporate Governance
Corporate governance is defined as the internal relations between managements, boards and investors within companies. It is ‘a set of relationships between a company’s management, its board, its shareholders, and other stakeholders’, as defined by the Organization for Economic Cooperation and Development (OECD).
As far as business ethics are concerned, corporate governance came to be as a result of the financial crisis. Reports detailing the crisis indicated severe shortcomings and non-existent standards in corporate governance. Checks and balances were unavailable hence sound business practices failed to cultivate. It is for this reason that an ambitious call for action was made by the OECD. A set of recommendations that required an overhaul in priority areas were developed.
High level corporate governance is essential in underpinning long-term business performance. It is instrumental in promoting the highest and best standards and practices within the boardroom. For the authorized asset managers, it is important to indicate and prove whether or not the code is applicable within their operational structures. This is aimed at holding investors accountable while at the same time a beneficiary to companies.
Corporate governance is based upon the principle of ‘comply or explain’. Organizations and companies that adhere to corporate governance are expected to comply with the provisions as provided in the code. If not the case, then they are expected to explain to shareholders and stakeholders the reason of not doing the same during the annual or periodic reports. This implies its essence in covering issues as far as effectiveness; transparency and proper management are concerned. Remunerations, shareholders’ relations, board committee roles and board composition are also looked into.
The inherent flexibility of corporate governance gives room for independent audits, supervisory assessments, risk governance, qualitative measures, regulatory compliance, and to some extent, risk limits. All these issues are favored then.
In a bid to address challenges as found in corporate governance in connection to the financial crisis, the corporate governance committee embarked on peer review processes that were thematic. They were aimed at facilitating effective application and implementation of principles of corporate governance. To date, six peer reviews have been completed. These are: the Risk Management and Corporate Governance in 2014, Supervision and Enforcement in Corporate Governance in 2013, Board Member Nomination and Election in 2013, Related Party Transactions and Minority Shareholder Rights in 2012, The Role of Institutional Investors in Promoting Good Corporate Governance in 2011 and the Board Practices Incentives and Governing Risks in 2011.
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