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Best Corporate Governance

Definition, Explanation

In corporate governance, companies and institutions define their values and principles, which when complied to, should guarantee a good and responsible company leadership and supervision. They apply to both employees and management. The rules are summarised in a codex, which comprises statutory regulations, sensible and recognised principles and company own guidelines.

In a kind of division of powers, corporate governance regulates the allocation of responsibilities and the interaction of the governing body, the board of directors, and owners or shareholders. Management and control structures are also a part of this. Corporate governance is based on national laws and thus differs in different countries. It takes the interests of various interest groups (stakeholders) into consideration and is aligned to the long-term success of the company. It implicates a functional corporate management, transparent corporate communication and balanced risk management.

The development of corporate governance goes back to the 1930s when the interests of shareholders and corporate management were very far from each other. Due to several financial scandals, companies that are listed on capital markets are obliged due to submit a corporate governance declaration. Details about internal control systems are stated in it. When using the German Corporate Governance Codex, companies must state which rules they follow. If they deviate from the Codex, they have to give reasons for this.

Last update: 03/08/2010