Basics of Corporate Governance

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Corporate governance refers to laws, rules and processes involved in a standard business enterprise. These are best practices that regulate operations and controls implemented in a business system. Corporate governance is also defined by stakeholders, officers and the constitution of the organization. Moreover, there are external factors like government regulations, clients and customer groups involved.

A well established corporate governance system improves the structure of the organization. It works in a way that benefits the entire organization. This is because individuals employed, stakeholders and key personnel ensure compliance with ethical standards. They also comply with formal laws that are important for the success of the business.

Recently, there has been an increase in focus on corporate governance. That’s because high profile standards have been abused. This has impacted corporate power due to increased criminal activity involving corporate officers. Therefore, there must be criminal or civil prosecution of those who refuse to comply with legal acts and ethical standards. To ensure this, corporate governance models have been designed.

Corporate Governance Models

In The UK and the US: These countries ensure compliance with the “Anglo-American Model” to achieve corporate obedience. This system is also known as “The Unitary System”. It requires the establishment of a single Board of Directors. This must comprise of executive directors that are expected to hold key positions in the business institution. These posts must execute best practices like auditing and compensation of employees or clients.

The UK and the US have one aspect that differs with regards to corporate governance. For instance, in the United Kingdom, the CEO doesn’t have the same designation as the chairman of the board. On the other hand, in the United States the CEO has dual roles to play. This has a huge impact on corporate governance in the US. Hence, the impact is seen in banking and other financial enterprises.

Moreover, US business institutions and banks are directly governed through compliance with state laws. At the same time, federal legislations govern security best practices. This is the main reason behind the adoption of “Model Business Corporation Act” by most states in the US. However, Delaware has the most dominant state law complied within the US.

Ensuring compliance with Delaware serves as the governance strategy in most publically traded corporations. In most companies, shareholders cannot face limitations. They are not allowed to introduce changes in corporate charter, though they can introduce changes in corporate bylaws.

Therefore, the basics of corporate governance involve compliance with the Anglo-American Model. This empowers stakeholders to elect a director of the board through just and fair best practices.

Further reading: Corporate Governance | Audit | Performance Improvement

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