The extent to which businesses are socially responsible for meeting legal, ethical and economic responsibilities placed on them by shareholders. The aim is for businesses to create higher standards of living and quality of life in the communities in which they operate, while still preserving profitability for stakeholders. Corporate Governance Principles Contemporary discussions of corporate governance tend to refer to principles raised in three documents released since 1990: The Cadbury Report (UK, 1992), the Principles of Corporate Governance (OECD, 1998 and 2004), the Sarbanes-Oxley Act of 2002 (US, 2002).
The Cadbury and OECD reports present general principles around which businesses are expected to operate to assure proper governance. The Sarbanes-Oxley Act, informally referred to as Sarbox or Sox, is an attempt by the federal government in the United States to legislate several of the principles recommended in the Cadbury and OECD reports. Rights and equitable treatment of shareholders: Organizations should respect the rights of shareholders and help shareholders to exercise those rights.
They can help shareholders exercise their rights by openly and effectively communicating information and by encouraging shareholders to participate in general meetings. Interests of other stakeholders: Organizations should recognize that they have legal, contractual, social, and market driven obligations to non-shareholder stakeholders, including employees, investors, creditors, suppliers, local communities, customers, and policy makers. Role and responsibilities of the board: The board needs sufficient relevant skills and understanding to review and challenge management performance.
It also needs adequate size and appropriate levels of independence and commitment. Integrity and ethical behavior: Integrity should be a fundamental requirement in choosing corporate officers and board members. Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making. Disclosure and transparency: Organizations should clarify and make publicly known the roles and responsibilities of board and management to provide stakeholders with a level of accountability. Read about Corporate Governance at Wipro
They should also implement procedures to independently verify and safeguard the integrity of the company’s financial reporting. Disclosure of material matters concerning the organization should be timely and balanced to ensure that all investors have access to clear, factual information. Stakeholders theory Stakeholder theory is a theory of organizational management and business ethics that addresses morals and values in managing an organization. Stakeholder theory suggests that the purpose of a business is to create as much value as possible for stakeholders.
In order to succeed and be sustainable over time, executives must keep the interests of customers, suppliers, employees, communities and shareholders aligned and going in the same direction. Innovation to keep these interests aligned is more important than the easy strategy of trading off the interests of stakeholders against each other. Hence, by managing for stakeholders, executives will also create as much value as possible for shareholders and other financiers. Responsible/Corporate Citizenship
The extent to which businesses are socially responsible for meeting legal, ethical and economic responsibilities placed on them by shareholders. The aim is for businesses to create higher standards of living and quality of life in the communities in which they operate, while still preserving profitability for stakeholders. Define Board of Directors and their functions A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization.
Other names include board of governors, board of managers, board of regents, board of trustees, and board of visitors. It is often simply referred to as “the board”. A board’s activities are determined by the powers, duties, and responsibilities delegated to it or conferred on it by an authority outside itself. These matters are typically detailed in the organization’s bylaws.
The bylaws commonly also specify the number of members of the board, how they are to be chosen, and when they are to meet. In an organization with voting members, e. g. , a professional society, the board acts on behalf of, and is subordinate to, the organization’s full group, which usually chooses the members of the board. In a stock corporation, the board is elected by theshareholders and is the highest authority in the management of the corporation. In a non-stock corporation with no general voting membership, e. g. , a typical university, the board is the supreme governing body of the institution; its members are sometimes chosen by the board itself.  Typical duties of boards of directors include: governing the organization by establishing broad policies and objectives; selecting, appointing, supporting and reviewing the performance of the chief executive; ensuring the availability of adequate financial resources; approving annual budgets; accounting to the stakeholders for the organization’s performance; setting the salaries and compensation of company management; The legal responsibilities of boards and board members vary with the nature of the organization, and with the jurisdiction within which it operates.
For companies with publicly trading stock, these responsibilities are typically much more rigorous and complex than for those of other types. Typically the board chooses one of its members to be the chairman, who holds whatever title is specified in the bylaws. The OECD Principles of Corporate Governance (2004) describe the responsibilities of the board; some of these are summarized below: Board members should be informed and act ethically and in good faith, with due diligence and care, in the best interest of the company and the shareholders.
Review and guide corporate strategy, objective setting, major plans of action, risk policy, capital plans, and annual budgets. Oversee major acquisitions and divestitures. Select, compensate, monitor and replace key executives and oversee succession planning. Align key executive and board remuneration (pay) with the longer-term interests of the company and its shareholders. Ensure a formal and transparent board member nomination and election process. Ensure the integrity of the corporations accounting and financial reporting systems, including their independent audit.
Ensure appropriate systems of internal control are established. Oversee the process of disclosure and communications. Where committees of the board are established, their mandate, composition and working procedures should be well-defined and disclosed. Define well governed company A well governed company is a company with a future. Progressing in conditions of sustainability as a guarantee for growth is one of the keys to good business governance. The good governance of organizations increases the confidence of investors and, consequently, their value in the markets.
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