Professional Documents
Culture Documents
Corporate governance as a
specific discipline is relatively new, although the concept has been around for centuries. As
beauty "lies in the eyes of the beholder", so does the answer to the question, "What exactly is
corporate governance?"
The Organization for Economic Co-operation and Development (OECD) explains corporate
governance as:
"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 and spells out the rules and procedures for making decisions
on 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."
"Corporate governance is concerned with holding the balance between economic and social
goals and between individual and communal goals the aim is to align as nearly as possible the
interests of individuals, corporations and society."Cadbury, World Bank report, 1999
"Corporate governance is the system by which companies are directed and managed. It
influences how the objectives of the company are set and achieved, how risk is monitored and
assessed, and how performance is optimised. Good corporate governance structures encourage
companies to create value (through entrepreneurism, innovation, development and exploration)
and provide accountability and control systems commensurate with the risks involved."
sustainability reports, general corporate social responsibility (CSR) reporting and other voluntary
information (e.g. through integrated reporting).
Includes management developing the appropriate culture in the company at all levels,
strategic and operational.
reflects whether investors and other stakeholders obtain a true picture of what is happening
inside the company.
Strong controls and systems have to be in place to be able to capture, analyse and present
reliable information on a timely basis to facilitate the appropriate level of openness and
transparency.
2.3.3 Innovation
Innovation "the process through which economic and social value is extracted from
knowledge through the generation, development, and implementation of ideas to produce new or
improved strategies, capabilities, products, services, or processes." The Conference Board of
Canada
"Good corporate governance structures encourage companies to create value through
entrepreneurism, innovation, development and exploration"
2.3.4 Scepticism
Professional scepticism in audit terms, it is an attitude that includes a questioning mind, being
alert to conditions which may indicate possible misstatement due to error or fraud and a critical
assessment of audit evidence.
In corporate governance, and in many other applications, scepticism requires a questioning mind,
being alert for possible errors and a critical assessment of facts and evidence.
One key element of good corporate governance is the oversight role applied by non-executive
directors and shareholders (especially institutional shareholders). For example, under the Code,
non-executive directors should constructively challenge and help develop proposals on strategy.
To do so requires appropriate levels of scepticism.
As an underpinning concept, scepticism is, perhaps, unique in that it can also play a role in other
underpinning concepts.
For example, application of healthy scepticism may assist the development of fairness, openness
and transparency, independence, probity and honesty, integrity and judgement within the entity
(e.g. challenging any system within the entity that may not appear to be fair to diversity or could
result in a reduction of transparency relating to a particular transaction).
2.3.5 Independence
The extent to which mechanisms have been put in place to minimize, or avoid, potential
conflicts of interest that may exist. Examples: