What Is Corporate Governance?

by Neil Kokemuller; Updated September 26, 2017
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Corporate governance has traditionally been the way a corporation protects the interests of its shareholders and other financiers. However, with heightened attention on corporation social responsibility (CSR) in the 21st century, the definition of corporate governance has evolved. More focus goes to balancing shareholder interests with those of other key stakeholder groups, including customers, communities and suppliers.

Board of Directors

A corporation's board of directors manages the process of corporate governance.This is the group that provides leadership, direction and oversight for the organization. Shareholders elect board members and it is the duty of the board to adhere to established corporate governance policies of the organization and to provide guidance on helping the organization fulfill its obligations of accountability, fairness and transparency to all stakeholders.

Statement of Purpose

Corporate governance guidelines typically include a statement of purpose. This statement offers direction to board members in guiding the company. Purpose statements commonly identify the board's primary function of representing the interests of their shareholders. However, corporations are expanding their oversight to include both social and institutional factors. Promoting, trust, morality and ethics are among the expanded responsibilities for many boards in the 21st century, according to the Management Study Guide website.

Benefits

The number one benefit of effective corporate governance is that it paves the way for corporate success and growth, according to the Management Study Guide. Good corporate governance also makes shareholders more confident which has positive effects on stock price. Following 21st century CSR guidelines, corporate governance can also help the company maintain good rapport with the public by fulfilling social and environmental responsibilities. Most importantly, corporate governance provides a direction and a purpose for a company, which is critical to building long-term success.

Shareholder Communication

Chief executive officers and other company executives more commonly communicate with the public at shareholder meetings and in press conferences. However, as part of corporate governance, it is the company's board that must ensure that the company communicates responsibly with its shareholders. This includes openness and accuracy in financial statements, disclosures and announcements. It also means offering shareholders a way to voice their opinions to the company and its leadership.

About the Author

Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.

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