Corporate governance is very much part of a movement towards greater accountability, better management and better monitoring of activities. It is essentially based on the principles of transparency, independence and accountability. It aims to stimulate the adoption of responsible behaviour within companies.
How to Define Corporate Governance?
Corporate governance can be defined as the system by which businesses are run and monitored. It therefore applies to the operation and internal monitoring of a business, but also to its relationship with the various stakeholders in all of its areas of activity.
According to the Belgian Corporate Governance Code: "Corporate governance encompasses a set of rules and behaviours that determine how companies are managed and monitored”.
What Are the Objectives of Corporate Governance?
Good corporate governance achieves its purpose by striking the right balance between leadership, entrepreneurship and performance on the one hand, and the monitoring of and compliance with these rules on the other.
Good governance must:
- be integrated into the company's values;
- provide mechanisms to ensure leadership, integrity and transparency in the decision-making process;
- help establish the company's objectives, the means to reach them and how to evaluate performance.
These objectives have to be in line with the interests of the company, its shareholders and other stakeholders.
Corporate governance also requires monitoring, namely:
- effective evaluation of performance;
- careful management of potential risks;
- appropriate supervision of compliance with agreed procedures and processes.
The main focus is on verifying the effective functioning of monitoring systems, the management of potential conflicts of interest and the implementation of sufficient controls to prevent abuse of power.
What Are the Links between Corporate Governance, Functions and Responsibilities?
Corporate governance refers mainly to the relationship between:
- the shareholders of a company;
- its board of directors;
- the management;
- other stakeholders (internal and external) of the company.
Corporate governance aims at an adequate distribution of competences and responsibilities for good management. It seeks to improve:
- the spreading of information;
- stakeholder relations;
- fair treatment between shareholders and investors’ confidence building.
One of the main aspects of corporate governance is the resolution of problems between the owners of the company's capital and the various stakeholders.