Corporate governance describes the system of rules and procedures used in the conduct and control of listed companies – its objective being the optimisation of performance, protecting the interest of employees, employers and investors.
As pension plans are increasing their exposure to foreign equities, the interest on corporate governance and shareholder activism are becoming more important. As owners of equity, institutional investors have a crucial role in promoting corporate governance.
Many people believe that capital costs are lower in markets where governance standards are highest and there is more information transparency. Those following this approach find the best way to achieve success in business is by good corporate governance.
The way companies look after basic principles of good governance is an increasingly important factor for investment decisions.
The different views on corporate governance are linked to cultural differences and national legislation. But, on the whole, codes and recommendation regarding this issue cover the same fundamental principles. These principles are related firstly to shareholders’ rights, regarding voting policies, information on the corporation, share of profits and the right to select members of the board. Most codes on corporate governance also state the need to ensure that the rights of the stakeholders protected by law are respected, promoting a performance-enhancing mechanism from stakeholder participation.
In terms of the board’s composition, good governance should be based on better board’s accountability to the company and the shareholders. The board’s members should be unrelated directors without any significant interest in or relationship to the organisation. Boards should become stewards, assuming responsibility for the strategic planning process, identification of risks, succession planning, corporate communication policy, and overseeing the process of disclosure.
Information disclosure should include the financial and operating results of the company and its objectives, the ownership structure and voting policies, as well as a list of members of the board and key executives and their remuneration and other governance and structures and policies.
Corporate governance principles are being discussed across the continent and the increasing awareness regarding shareholder activism corporate accountability are helping to create common ground between companies and their shareholders. This is meant to improve the responsiveness of boards to the concerns and priorities of shareholders.