What constitutes good corporate governance will vary, depending on the culture in which the corporation operates. What is considered good corporate governance in the United States might be considered unethical in other cultures. Conversely, what another culture might think of as good corporate governance might be considered unethical in the United States. Still, some partial consensus has developed over time.
Good corporate governance requires timely and accurate communication of a number of aspects of corporate business operations. Things that must be communicated in a timely and accurate fashion can include corporate financial performance, such as sales, profit, and loss data, and relevant economic data. Relevant economic data can include cash reserves and corporate debt load.
The activities in which the company engages in the course of business operations must also be reported in an open and timely fashion. The exact definition of timely can vary, however, depending on the jurisdiction. In general, this information is communicated, at minimum, in annual corporate reports.
Good corporate governance must protect and promote shareholder interests and rights. Although this is usually interpreted as a fiduciary duty to give shareholders as high a return on their investments as possible, there are some other factors.
Short-term actions that promote short-term profit, but take legal and ethical risks that may result in negative actions against a corporation in the future, are generally not considered acting in the shareholders' interest.
Acting in the shareholders' interest also requires that a board of directors pay close attention to employing competent and skilled senior corporate officers and executives.
Although the board of directors of a corporation is answerable to shareholders, the board must be able to operate independently. This is especially important in determining the direction of a corporate entity.
In some cases, senior executives may want to take a company in a direction that the board of directors views as contrary to shareholder interests. As a corporate governing body elected by shareholders, the board must have the power to replace senior executives that board members do not think are acting in the best interest of shareholders.
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