CIMA BA4 Syllabus B. CORPORATE GOVERNANCE - Corporate Governance - Notes ^{1 / 8}

What is corporate governance?

Corporate governance is the system by which a company is directed and controlled. 

It is the responsibility of the board of directors of the company. 

It is the body of rules and ethics primarily concerned with the effective control, business efficacy and accountability of the management of public listed companies for the benefit of stakeholders. 

These rules are required to ensure that management act in the best interest of all stakeholders, this means that corporate governance adds on additional duties on top of what already exists for directors.

Stakeholders are all those directly and indirectly affected by the company’s activities.

Advantages of Corporate Governance

1. Shareholders will pay high premiums for companies that we are well governed

2. Reduced risk to all stakeholders

3. Improving transparency surrounding how the organisation is run

4. Imposing certain checks and controls on directors

Examples of good corporate governance

1. Payment of bonuses to directors

2. An employee discovering errors in a report after following company checking procedures

3. Internal controls to protect a company’s assets

4. Employee performance related pay schemes

5. Regular shareholder contact

Examples of poor corporate governance

1. Domination by a single individual

2. Lack of board involvement

3. Emphasis on short term profitability

4. Contradictory information given to stakeholders