Corporate governance is the system by which companies are directed and controlled. Boards
of directors are responsible for the governance of their companies. The shareholders’ role in
governance is to appoint the directors and the auditors and to satisfy themselves that an
appropriate governance structure is in place.
The responsibilities of the board include setting the company’s strategic aims, providing the
leadership to put them into effect, supervising the management of the business and reporting
to shareholders on their stewardship.
Corporate governance is therefore about what the board of a company does and how it sets
the values of the company, and it is to be distinguished from the day to day operational
management of the company by full-time executives.
In the UK for listed companies corporate governance it is part of the legal system as the UK
Corporate Governance Code applies to accounting periods beginning on or after 29 June
2010 and, as a result of the new Listing Regime introduced in April 2010, applies to all
companies with a Premium Listing of equity shares regardless of whether they are
incorporated in the UK or elsewhere.
But good governance can have wider impacts to the non listed sector because it is
fundamentally about improving transparency and accountability within existing systems. One
of the interesting developments in the last few years has been the way in which the
‘corporate’ governance label has been used to describe governance and accountability issues
beyond the corporate sector. This can be confusing and misleading as UK Corporate
Governance has been built and developed to deal with the governance of listed company
entities and not designed to cover all organisational types that may have different
accountability structures.
Many academic studies conclude that well governed companies perform better in commercial
terms.