CHAPTER 5Q.Corporate governance is the process bywhich _____.A.corporations are directed and controlled Show
Setting up a governance system that allowsorganizations to be directed and controlledleads to underpinning the integrity andefficiency of financial marketsIf the corporate governance in an organization ispoor, it _____. The board of directors of a companyoversees the governance of the organizationThe inside members of a company's board ofdirectorshold managerial positions within thecompanyIdentify a feature of the outside members of anorganization's board of directorsThey may comprise the company's creditors,suppliers, or consultantsOne of the responsibilities of the auditcommittee of a company is tomonitor the company's accounting policiesand proceduresCatherine, a board member of Clayton Inc., isalso part of an operating committee that isresponsible for overseeing the accountingpolicies of the company. This committee isknown as the _____.audit committee The _____ of a company is an operatingcommittee responsible for determining thesalaries, bonuses, and perks for the CEO andother senior executivescompensation committeeWhich of the following is true of thecompensation committee of a companyIdentify a true statement about the corporate governance committee of a company Corporate governance is the system of rules, practices and processes by which a company is directed and controlled.Corporate Governance refers to the way in which companies are governed and to what purpose. It identifies who has power and accountability, and who makes decisions. It is, in essence, a toolkit that enables management and the board to deal more effectively with the challenges of running a company. Corporate governance ensures that businesses have appropriate decision-making processes and controls in place so that the interests of all stakeholders (shareholders, employees, suppliers, customers and the community) are balanced. Governance at a corporate level includes the processes through which a company’s objectives are set and pursued in the context of the social, regulatory and market environment. It is concerned with practices and procedures for trying to make sure that a company is run in such a way that it achieves its objectives, while ensuring that stakeholders can have confidence that their trust in that company is well founded. As the home of good governance, the Institute believes that good governance is important as it provides the infrastructure to improve the quality of the decisions made by those who manage businesses. Good quality, ethical decision-making builds sustainable businesses and enables them to create long-term value more effectively. What is corporate governance?Corporate governance is the combination of rules, processes and laws by which businesses are operated, regulated and controlled. The term encompasses the internal and external factors that affect the interests of a company's stakeholders, including shareholders, customers, suppliers, government regulators and management. The board of directors or corporate executive board is responsible for creating a framework for corporate governance that best aligns business conduct with corporate objectives. Good corporate governance involves establishing principles of security, transparency, equity, compliance, reliance and accountability. Importance of corporate governanceCorporate governance is critical for the proper functioning of an organization. Demonstrating good corporate governance is important for maintaining a company's reputation. Corporate governance is based on a set of rules, bylaws, policies and procedures to ensure company accountability. When done correctly, it establishes a framework for attaining a company's objectives in all spheres of management. It also recognizes the importance of shareholders. Shareholders elect the company's members of the board, fund company operations and have a direct say in the operation of the business. Good governance ensures a company's integrity, overall direction, risk management and success planning. This, in turn, helps companies stay financially viable and build strong community, shareholder and investor relations and trust. Demonstrating good corporate governance is often considered as important as profitability for businesses. Bad corporate governance can lead to a host of negative outcomes, such as the following:
Principles of corporate governanceWhile corporate governance structures may vary, most organizations incorporate the following key elements:
Conflict management in corporate governanceOne purpose of corporate governance is to implement a checks-and-balances system that minimizes conflicts of interest between various stakeholders and with any individual party. Conflicts arise when two parties have opposing opinions or goals on the way business should be conducted. Conflicts of interest can also arise when individual stakeholders might gain personally from a corporate action or decision they have a say in. The board of directors should provide a nonbiased way to handle these sorts of conflicts. Conflicts can occur when executives disagree with shareholders. For example, the shareholders may want to pursue goals that generate greater profits, while the chief executive officer might want to invest in better employee engagement efforts. Another type of conflict could arise if multiple shareholders disagree with each other. Personal conflicts of interest or conflicts among directors, audit plan administrators and company executives are typically disclosed in proxy statements. A proxy statement is a document that shareholders use to evaluate the qualifications and compensation of the board of directors and key senior management staff. Public companies are required by the Securities and Exchange Commission to release proxy statements. They are shared during annual meetings when a company is soliciting shareholder votes on a given matter, such as nominating a new member to the corporate boards. Examples of corporate governanceSpecific processes that can be outlined in corporate governance may include the following:
An example of good corporate governance practices is a well-defined and enforced structure that works for the benefit of everyone concerned by ensuring that the enterprise adheres to accepted ethical standards, best practices and formal laws. Alternatively, bad corporate governance is poorly structured, ambiguous and noncompliant approaches to running a business. All of these approaches can damage the image or financial health of a business. The Enron scandal is an example of poor corporate governance. Enron Corp. declared bankruptcy in 2001 -- just months before it was one of the largest companies in the U.S. Enron falsely reported its revenue by a wide margin and used fraudulent methods to hide debts and toxic assets from investors and regulators to avoid accountability. This scandal had a lasting effect on Wall Street and led the government to pass new regulations on corporate accountability and governance. Good corporate governance often goes unnoticed in the public sphere. One example of a company with a reputation for good corporate governance is PepsiCo. In its 2020 proxy statement, the company outlined its leadership structure and changes to the compensation program, as well as input from investors in the following areas:
Regulation of corporate governanceCorporate governance has received increased attention because of high-profile scandals involving abuse of corporate power or alleged criminal activity by corporate officers. To counteract those activities, various laws and regulations have been passed to address the components of corporate governance guidelines, including the following:
Good corporate governance depends on complying with various regulations, both general and industry-specific. Learn the top cloud compliance standards and how cloud companies can use them. This was last updated in August 2022 Continue Reading About corporate governance
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What is the name of the system by which Organisations are directed and controlled?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.
What are the 4 governance principles?The board of directors must act following the four principles of governance — accountability, transparency, fairness and responsibility — for the best interest of stakeholders, shareholders and the business as a whole.
What is governance in an organization?Governance encompasses the system by which an organisation is controlled and operates, and the mechanisms by which it, and its people, are held to account. Ethics, risk management, compliance and administration are all elements of governance.
What are the three models of governance?Three dominant models exist in contemporary corporations: the Anglo-US model, the German model, and the Japanese model. In one sense, the differences between these systems can be seen in their focuses.
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