Corporate Governance

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In a commercial organisation, the board of directors is typically charged with the key responsibility for corporate governance – protecting the rights of shareholders and creditors, ensuring contractual obligations and regulatory compliance.

In the public sector, the elected government is typically responsible for corporate governance, and in semi-government and statutory bodies like State Rail, Sydney Water, the Australian Broadcasting Authority, the University of NSW, etc – and in not- for-profit organisations – governments will usually mandate a body similar to a board of directors with the responsibility for corporate governance.

What does corporate governance involve?

In a recent article, Gomez & Korine (2005, pp. 739-752) propose that:

Corporate governance can be understood as a set of contracts that defines the relationships among the three principal actors in the corporation.

To simplify what this actually means, corporate governance is the set of relationships where:

•A key stakeholder whom they refer to as the sovereign (in the case of commercial organisations this would be the shareholders; in the case of public sector agencies, the elected government; for not-for-profit organisations this is often the ‘members’ or other key stakeholders as defined by legislation)

•sets in place a governing body (eg, board, council, senate, etc) with responsibility for overseeing the actions of the governer (management, staff, employees, volunteers, players, etc)

Increasingly, societies and governments are reacting to a rapidly changing world surrounding them, and modifying the regulations affecting ‘corporate governance’ accordingly. The numbers and interests of stakeholders who are affected by the actions of organisations is expanding. Organisations are being seen to impact on:

the economy
the natural environment
society through opportunities for work and employment
conditions of work
family life, etc

Consequently, there are increasingly complex expectations placed on organisations of all sizes to consider and take responsibility for decisions and actions beyond simply their ‘money making’ or other purposes and goals.

Corporate governance covers a large number of distinct concepts and phenomenon as we

can see from the definition adopted by Organization for Economic Cooperation and

Development (OECD) – “Corporate governance is the system by which business

corporations are directed and controlled. The corporate governance structure specifies

the distribution of rights and responsibilities among different participants in the

corporation, such as, the board, managers, shareholders and other stakeholders and

spells out the rules and procedures for making decisions in corporate affairs. By doing

this, it also provides the structure through which the company objectives are set and the

means of attaining those objectives and monitoring performance”1. From this definition

we see that corporate governance includes the relationship of a company to its

shareholders and to society; the promotion of fairness, transparency and accountability;

reference to mechanisms that are used to “govern” managers and to ensure that the

actions taken are consistent with the interests of key stakeholder groups. The key points

of interest in corporate governance therefore include issues of transparency and

accountability, the legal and regulatory environment, appropriate risk management

measures, information flows and the responsibility of senior management and the board

of directors.

Harshbarger and Holden (2004) point out that while many of the governance issues that

organizations face are not new, the environment in which they confront them is more

challenging than ever: State and Federal law enforcement have applied significantly

increased resources and a more aggressive philosophy toward confrontation of

governance lapses; the media spotlight has...
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