Corporate Governance Explained
The Corporate governance definition is fairly ambiguous because of the several processes tied into the field. In general, the corporate governance definition refers to the set of procedures, customs, laws, policies and institutions that affect how a corporation is directed, controlled or formally administered. Furthermore, the corporate governance definition will also include the relationships among the stakeholders of a company or those who are involved in or profit from the company’s long term growth.
For a contemporary business corporation, the primary external stakeholders are composed of debt holders, shareholders, trade creditors, customers, communities and suppliers—each of these stakeholders is directly affected, in one way or another, by the corporation’s activities. Internal stakeholders, a term commonly used when analyzing and observing the corporate governance definition, refers to the board of directors, executives and other employees who are influential in deciding the company’s day-to-day policies.
Corporate governance, using the above description as a basis point, is a multi-faceted subject. A primary aspect of the corporate governance definition is the general nature and extent of accountability, particularly in regards to individuals of the organization, as well as the mechanisms that attempt to mitigate the principal-agent problem.
Corporate Governance Definition:
Although it is common to suggest that corporate governance lacks a universal definition, the term, essentially, refers to the set of processes, customs, laws and institutions that affect the way a corporation is run in both the long and short term. Furthermore, the corporate governance definition also evaluates the relationships among the many stakeholders involved in the business model. As a result of the fluctuations of these generalized processes, the corporate governance definition is a broad process, used toevaluate and regulate the relationship of rights and responsibilities among stakeholders, shareholders, owners and managers of the respective organization.
In essence, the corporate governance definition will explain what rights and responsibilities are granted to each of the corporation’s participants and to what degree each individual or body may enjoy such rights. Within a corporation, the presence and structure of corporate governance will begin with the laws that impact the operation within the particular jurisdiction—companies may not legally operate without a corporate structure that meets the respective areas minimum requirements.
The basis for corporate governance is outlined in documents that are be prepared and submitted for approval before incorporation can legally take place. These documents help form the final expression of the company, particularly the relationship between shareholders, stakeholders, management and the board of directors. The bylaws, articles of incorporation and the company charter will affirm the details that determine authority in the decision making process. Along with the laws that govern a corporation in the particular jurisdiction and the founding documents, corporate governance is further refined through the drafting of formal procedures that not only assess the distribution of powers in accordance to the corporate charter, but also elucidate on how those powers may be enforced. This process enables the company to maintain an affirmed balance of power as the company evolves and grows; the rights and privileges and the flow of responsibility is not tampered with nor refuted.