The system by which companies and other organisation are directed and controlled is called corporate governance. Corporate governance is concerned with the improving the way companies and other organisation are governed and run. Corporate governance is neither created by legislation nor by defined by court. It is primarily concerned with effective control, business accuracy and accountability of the management of the public listed companies for the benefit of stakeholder. Stakeholders are those who are effected directly or indirectly by the company activities.
There is an overlap between business ethics, company law, and corporate governance. Company law is made up of ethical principles and standards of behavior which legislators and the courts have thought it right and proper to enshrine within the law of the land.
The objective of corporate governance is to control the managers/ director by increasing the amount of reporting and disclosures. It also helps to increase the level of confidence and transparency in company activities for all investor extinguished and thus promote growth in the company. It also helps to increase the disclosure to all stake holders. It helps to ensure that the company is run in a legal and ethical manner. It also helps to build in control the top that will cascade down the organisation. Corporate governance is one way of trying to manage the principal agent problem.
Corporate governance is used to direct manage and monitor an organisation and enables it to relate to its external environment. The UK corporate Governance code (2010) represents best practice in corporate governance and what they have seen as model for companies to adopt.
The main features of this model are pointed below;
Separation of powers especially in relation to roles of the chairman and the chief executive
To adopt an approach which reflects the interest of all stakeholder.
To ensure that the board of director are fully accountable.
Remuneration committees determine to pay the board of director.
Agreement for organizing the annual general meeting.