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Corporate Governance
A system of rules, policies, and practices that
dictate how a company’s board of directors
manages and oversees the operations of a
accountability, and security.
Poor corporate governance, at best, leads to a
company failing to achieve its stated goals, and, at
worst, can lead to the collapse of the company and
significant financial losses for shareholders.
A Key Principle of
Corporate Governance
Shareholder Primacy
 Perhaps one of the most important principles of corporate
governance is the recognition of shareholders. The recognition is
two-fold. First, there is the basic recognition of the importance of
shareholders to any company – people who buy the company’s stock
fund its operations. Equity is one of the major sources of funding for
businesses. Second, from the basic recognition of shareholder
importance follows the principle of responsibility to shareholders.
 The policy of allowing shareholders to elect a board of directors is
critical. The board’s “prime directive” is to be always seeking the best
interests of shareholders. The board of directors hires and oversees
the executives who comprise the team that manages the day-to-day
operations of a company. This means that shareholders, effectively,
have a direct say in how a company is run.
 Shareholder interest is a major part of corporate governance.
Shareholders may reach out to the members of the community
who don’t necessarily hold an interest in the company but who
can nonetheless benefit from its goods or services.
 Reaching out to the members of the community encourages
lines of communication that promote company transparency. It
means that all members of the community – those who are
directly or indirectly affected by the company – and members
of the press get a clear sense of the company’s goals, tactics,
and how it is doing in general. Transparency means that
anyone, whether inside or outside the company, can choose to
review and verify the company’s actions. This fosters trust and
is likely to encourage more individuals to patronize the
company and possibly become shareholders as well.
Corporate governance refers to all laws, regulations, codes and
practices, which defines how institution is administrated and
inspected, determines rights and responsibilities of different
partners, attracts human and financial capital, makes
institution work efficiently, provides economic value to stock
holders in the long turn while respecting the values of the
community it belong. For corporate governance, the
management approach should be in accordance with the
following principles.
Principal 1 : Governance structure:
All Organizations should be headed by
an effective Board. Responsibilities and
accountabilities within the organization
should be clearly identified.
Principal2 : The
of the board and its
The board should comprise independent minded
directors. It should include an appropriate
combination of executive directors, independent
directors to prevent one individual or a small group of
individuals from dominating the board’s decision
taking. The board should be of a size and level of
diversity commensurate with the sophistication and
scale of the organization. Appropriate board
committees may be formed to assist the board in the
effective performance of its duties.
Director appointment
Principal 3 :
There should be a formal, rigorous and
transparent process for the appointment, election,
induction and re-election of directors. The search
for board candidates should be conducted, and
appointments made, on merit, against objective
criteria (to include skills, knowledge, experience,
and independence and with due regard for the
benefits of diversity on the board, including
gender). The board should ensure that a formal,
rigorous and transparent procedure be in place for
planning the succession of all key officeholders.
 Principal 4 : Directors duties, remuneration and performance:
Directors should be aware of their legal duties. They should
observe and foster high ethical standards and a strong ethical culture
in their organization. Each director must be able to allocate sufficient
time to discharge his or her duties effectively. Conflicts of interest
should be disclosed and managed. The board is responsible for the
governance of the organization’s information, information
technology and information security. The board, committees and
individual directors should be supplied with information in a timely
manner and in an appropriate form and quality in order to perform
to required standards. The board, committees and individual
directors should have their performance evaluated and be held
accountable to appropriate stakeholders. The board should be
transparent, fair and consistent in determining the remuneration
policy for directors and senior executives.
Principal5 : Risk governance and internal
The board should be responsible for risk
governance and should ensure that the
organization develops and executes a
comprehensive and robust system of risk
management. The board should ensure the
maintenance of a sound internal control
Principal6 : Reporting and integrity:
The board should present a fair, balanced
and understandable assessment of the
organization’s financial, environmental, social
and governance position, performance and
outlook in its annual report and on its website.
Principal7 : Audit:
Organizations should consider having an
effective and independent internal audit
function that has the respect, confidence and
cooperation of both the board and the
management. The board should establish
formal and transparent arrangements to
appoint and maintain an appropriate
relationship with the organization’s auditors.
Principal8 : Relations with share holders and
other key shareholder:
The board should be responsible for ensuring
that an appropriate dialogue takes place
among the organization, its shareholders and
other key stakeholders. The board should
respect the interests of its shareholders and
other key stakeholders within the context of its
fundamental purpose.
The Benefits to Shareholders
 Good CORPORATE GOVERNANCE can provide the
proper incentives for the board and management to
pursue objectives that are in the interest of the company
and shareholders, as well as facilitate effective
 Better CORPORATE GOVERNANCE can also provide
Shareholders with greater security on their investment.
 Better CORPORATE GOVERNANCE also ensures that
shareholders are sufficiently informed on decisions
concerning fundamental issues like amendments of
statutes or articles of incorporation, sale of assets, etc.
As we have iterated, this part explains our view of
best corporate governance practice and the holistic
approach by which we believe an organization can
ensure that a state of good corporate governance
exists, or is brought into being if its existence is
uncertain. It takes the view that there is an overriding moral dimension for running a business
and that the standard of governance will depend
on the moral complexion of the operation.
Five Golden Rules of best
corporate governance practice is:
 Ethics: Clearly ethical practices applied to the business
 Align Business Goals: appropriate goals, arrived at through
the creation of a suitable stakeholder participation in
decision making model
 Strategic management: an effective strategy process which
incorporates stakeholder value
 Organization: an organization suitably structured to give
effect to the good corporate governance
 Reporting: reporting systems structured to provide
transparency and accountability.