Core aims that underpin corporate governance regulations

Explain the core aims that underpin corporate governance regulations

1. Ensuring Integrity

A basic aim of all governance guidance has been to promote ethical fair dealing by companies.

2. Promotion of Strategic Objectives

Reports have been sought to ensure adherence to and satisfaction of the strategic objectives of the organization, aiding effective management. The UK’s Hampel Report stressed the importance of good governance in contributing to a business’s development.

3. Control over Companies

CG can be seen as a creating a framework for the control of multinational companies whose interests may not coincide with national interests. CG provides a framework for enforcing companies with laws on this sort of company.

4. Enhancing Risk Management

CG guidelines have promoted risk management principles, especially financial, legal and reputation risks. They have required compliance with accepted good practice in the jurisdiction in question and appropriate systems of control to be in place.

5. Involvement of Shareholders

As well as protecting shareholders, governance recommendations are designed to enhance shareholder involvement, particularly institutional shareholder involvement, in companies. This is achieved by giving them more detail about company activities, and improving proceedings at annual general meetings by recommending votes on remuneration policy and the report and accounts.

6. Protection of Shareholders and Stakeholders

Governance reports aim to protect shareholders in the same way that investors are protected who buy any other financial investment product, such as insurance or a pension. Governance reports are also concerned with fulfilling responsibilities to all stakeholders. This includes minimizing potential conflicts of interest between the owners, managers and wider stakeholder community, and treating each category fairly.

7. Establishment of accountability

Governance reports are designed to address the problem of the over-mighty managing director by emphasizing the role of the whole board in major decisions, and the need for a clear division of responsibilities at the head of companies so that one person does not enjoy unfettered power.

8. Maintenance of Effective Scrutiny

Governance provisions have stressed the importance of the board exercising oversight over the company’s activities by regular meetings and regular review of key areas, for example the adequacy of control systems. Governance provisions have also aimed to ensure the independence of those with primary responsibility for scrutinizing company activities. This include prescribing what constitutes, or what might jeopardize the independence of non-executive directors, it also means enhancing their position by prescribing that a certain number of directors be non-executive, and giving the internal and external auditors the right to communicate with an audit committee staffed by non-executive directors.

9. Provision of Accurate and Timely Information

Governance reports are designed to complement developments in financial reporting guidance by emphasizing the need for accounts to present a true and balanced picture of what is happening in the organization. They also emphasize the importance of timely information as an aid enabling directors to supervise company activities better.