Corporate Governance

Introduction

Corporate governance is the system of organizational structures, processes, and relations by which corporations are directed and controlled. Corporate governance includes mechanisms for accountability and tools for ensuring that those who are supposed to be accountable are acting in the corporation’s best interests.

Strategic direction

A company’s strategic direction is the overall direction it takes to achieve its mission and vision. The board of directors sets the strategic direction, which can also be defined as the company’s mission, vision, and values.

The board determines what business the organization will operate in, how it will compete in those markets, and what kind of products or services they provide. The board uses this information to guide the organization’s actions.

Develop a plan

The first step in developing a corporate governance plan is to create a strategic plan. A strategic plan is the most important document in the company; it outlines the direction of your business and defines how it will grow and develop over time.

The next step is to draft a mission statement explaining what your company does, why it exists, and who its customers are. After that comes the vision statement: this is an aspirational expression of what you want your business to become in five years or more. You can also use this as an opportunity to set out any specific growth or expansion goals during that period (e.g., doubling sales).

Implement strategy

A strategic plan is a document that describes the organization’s objectives, goals, and activities. It provides direction for organizations to achieve their long-term goals.

Strategic planning involves:

An assessment of the current situation
Development of strategies for improvement
The formulation of plans for implementing those strategies

Execute the strategic plan

The Board of Directors and senior management should ensure that the company’s strategic plan is implemented. The execution of a strategic plan should be a continuous process, and changes in the environment should be considered when developing new strategies or reviewing existing ones.

Common corporate governance model

The most common corporate governance models are:

Shareholder model. The board of directors is elected by shareholders and represents the interests of shareholders only.
Managerial model. The board of directors is composed entirely of managers acting in the interests of all stakeholders, including shareholders, employees, and customers.
Board of trustees model. The board consists of three different types: individuals who represent the interests of a given stakeholder group (such as employees), individuals who represent the interests of more than one stakeholder group (such as an employee-employer representative), and independent directors who do not have ties to any stakeholder groups but rather serve on their initiative as overseers for all stakeholders’ concerns.
Board of governors model (also known as a “tripartite” or “triangular” corporation). This type combines elements from both previous models, with two classes representing specific stakeholder groups (shareholders and employees) and independent directors working in their best interests.

Shareholders

A company’s relationship with its shareholders is an important factor in its success. Shareholders are the owners of the company and may be individuals or investment institutions. They invest in a business by buying shares, which give them legal title to part of that business’s assets and earnings.

The board of directors is elected by shareholders, who then exercise control over corporate policies by voting on management issues at annual and other meetings (also known as shareholder meetings).

Board of directors

The board of directors is made up of those appointed by the shareholders, who usually have a fiduciary duty to act in the best interest of the company and its investors. The board sets strategic direction, approves major investments, oversees executive compensation, and appoints a CEO. A strong board will ensure that management stays focused on delivering value for shareholders.

The ideal candidate for boards should be an independent director with experience in finance, accounting, or auditing; investing or private equity; law; governance; risk management; operations management; technology management; or other relevant fields. In addition to financial expertise, diversity (gender balance) is also increasingly important.

Chief executive officer

The chief executive officer (CEO) is the highest-level executive in a company. The CEO is responsible for implementing the strategic plan and ensuring it is adhered to. In addition, the CEO is responsible for the business’s day-to-day operations, including human resources management and compliance with laws and regulations. Finally, CEOs are charged with monitoring performance in line with their own goals as well as those set by their boards of directors or shareholders; if there are any problems or issues with meeting these targets—such as low productivity rates or high employee turnover rate—it’s up to them to address them immediately so that they can be rectified before they become larger issues down the road.

Management team

The management team is a group of individuals responsible for the day-to-day operations of the organization, as well as its strategic direction. It is also responsible for implementing and executing the strategic plan.

The management team typically consists of a CEO, CFO, COO, Directors/VPs, and other senior leaders within the company.

Function of the organization

The formal definition of a corporation is an organization that is created by the laws of its state and operated to provide a return on investment to its shareholders. That’s a great start, but it doesn’t tell us what makes up the structure of this type of organization.

A corporation is not just an office building with people inside doing work. Instead, it’s more like an airplane: it has wings (the strategy), engines (the resources), and controls (the processes). The goal is for all three pieces—strategy, resources, and processes—to work together seamlessly so that you get from point A to point B without crashing or running out of fuel along the way!

Delegate authority, responsibility and accountability for policy implementation.

Delegating authority and responsibility is a key element of sound governance. A strong board will delegate authority to the right people within the organization, establish clear lines of communication, manage expectations, and set goals and objectives. The board should ensure that those responsible for policy implementation have the necessary resources to achieve these goals.