What is corporate governance?

Corporate governance is concerned with optimizing and improving how companies are managed and monitored, with the goal of benefiting all stakeholders and minimizing downside risks.

Shareholders, the board of directors, management, employees, and other stakeholders all have a role to play in ensuring that companies adhere to the highest governance standards.

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The need for corporate governance

Some of the gravest corporate failures and scandals, not least those central to the global financial crisis, have their origins in poor corporate governance.

The outcome of these failures normally has dire implications for many stakeholders – employees, shareholders, investors, customers, suppliers, and sometimes even taxpayers.

In more extreme cases, poor corporate governance can severely damage financial markets and the wider economy.

But what exactly is “corporate governance”?

Put simply, it is a broad term that describes the processes, structures, rules, and laws by which companies are directed and controlled.

“Good” corporate governance should ensure that businesses are managed in ways that benefit the interests of shareholders and all other stakeholders.

The rise of ESG and the sustainability movement, combined with the social media world we now live in, mean that companies face more scrutiny than at any other point in history.

Corporate shortcomings can be quickly and ruthlessly exposed by business insiders and others, so corporate decision-makers must focus their minds like never before.

Properly implemented, corporate governance can enhance the performance of companies, improve their access to funding and, more broadly, contribute to sustainable economic development.

Defining corporate governance

There is no universally agreed definition of the term “corporate governance” (CG). The structure of companies varies across the world, as do the norms and rules governing business, stock ownership, management, and so on.

However, the definition provided by the G20/OECD Principles of Corporate Governance – generally regarded as the international benchmark for good CG – is the most frequently cited:

This definition has been adopted or mirrored by a number of other influential organizations, including the Basel Committee on Banking Supervision (BCBS) – the primary global standard setter for the prudential regulation of banks.

Meanwhile, the International Organization for Standardization (ISO) in its “ISO 37000, Governance of organizations” defines governance as a:

Benefits of good corporate governance

Good corporate governance offers many potential benefits for businesses, stakeholders, and economic and financial systems.

The G20/OECD Principles set out three key benefits from well-designed corporate governance policies.

Access to financing

Good CG can help companies to access funding, particularly from capital markets. This, in turn, promotes investment, innovation, and productivity growth, as well as economic dynamism more broadly.

Banks, investors, and other providers of capital have greater confidence in well-governed companies. This helps such companies attract funding from a much larger pool of capital providers and at a lower cost.

Investor protection

Good CG provides a framework to protect investors, including the millions of retail investors who invest directly in equity markets or indirectly through vehicles such as ETFs, mutual funds, and pension funds.

Companies with a formal structure that promotes transparency and accountability help to build trust in themselves and markets more generally. This contributes to the creation of an investment environment that provides opportunities for investors to achieve higher returns while knowing that their rights are protected.

Sustainability and resilience

Good CG supports the sustainability and resilience of companies which, in turn, can contribute to the sustainability and resilience of the broader economy.

Many investors today focus not just on a company’s financial performance but also on broader economic, environmental, and societal issues. Governments and regulators are also increasingly focused on how businesses are addressing these challenges and managing the associated risks.

A sound CG framework that incorporates climate change and other sustainability issues helps companies to respond to the interests of their various stakeholders, as well as contribute to their own long-term success.

Intuition Know-How, the world’s premier digital learning solution for finance professionals, offers a comprehensive course on corporate governance. More details can be found below.

If you would like to speak to a member of our team about gaining access to this course, please fill in the form.

Corporate governance is concerned with optimizing and improving how companies are managed and monitored, with the goal of benefiting all stakeholders and minimizing downside risks. Shareholders, the board of directors, management, employees, and other stakeholders all have a role to play in ensuring that companies adhere to the highest governance standards. This course explores the increasingly challenging world of corporate governance in detail.

Topics covered in this course include:

• The benefits of “good” corporate governance
• The different theories of corporate governance and how they explain why companies might fail
• The key principles, guidelines, and regulations that influence corporate governance today
• The concept of individual accountability and how it has obtained greater prominence in a corporate governance context
• The key components of an effective corporate governance structure
• The structure and role of a typical board of directors as well as its various committees
• The role of risk, audit, and compliance
• The impact of shareholders and investors, especially institutional investors, on corporate governance
• The role of industry regulators/supervisors in overseeing and guiding corporate governance

Learner Profile

This course is aimed at financial professionals – including managers, experienced staff, and new entrants – who play a role in the ethical, accountable, and effective operations of financial firms. While the course may be most helpful to those with direct corporate governance responsibilities, all employees will benefit from an improved understanding of contemporary corporate governance standards and practices.