Question

3. In good corporate governance the Shareholders, Board of Directors and Management have defined roles to play. With the aid of the figure below, explain how these inter and intra relationship works.

Outward looking	accountability	strategy formulation
Inward looking	supervision executive	policy making
When	past and present focused	future focus

Answer 1

Corporate governance is the system of rules, practices, and processes by which a firm is directed and controlled. Corporate governance essentially involves balancing the interests of a company's many stakeholders. A company’s corporate governance is important to investors since it shows a company's direction and business integrity. Good corporate governance helps companies build trust with investors and the community. As a result, corporate governance helps promote financial viability by creating a long-term investment opportunity for market participants.

The role of the board is to plan and strategize goals and objectives for the short- and long-term good of the company and to put mechanisms in place to monitor progress against the objectives. To this regard, board directors must review, understand and discuss the company’s goals. In particular, the board relies on independent directors to challenge the board’s perspectives to ensure sound decision-making. The board directors act as stewards of the company that govern for the present times and provide guidance and direction for the future. In their role as overseers, boards must continually assess a variety of risks related to financial reporting, ethics, technology, safety, environment etc. Communication is a vital component of good corporate governance. Boards must communicate clearly and in a timely manner to develop a sense of mutual confidence and trust with their managers. It’s important for board directors to be having regular conversations with managers about risk mitigation and prevention.

Management, led by the CEO, is responsible for setting, managing and executing the strategies of the company, including but not limited to running the operations of the company under the oversight of the board and keeping the board informed of the status of the company’s operations. Management’s responsibilities include strategic planning, risk management and financial reporting. An effective management team runs the company with a focus on executing the company’s strategy over a meaningful time horizon and avoids an undue emphasis on short-term metrics.

Shareholders invest in a corporation by buying its stock and receive economic benefits in return. Shareholders are not involved in the day-to-day management of business operations, but they have the right to elect representatives (directors) and to receive information material to investment and voting decisions. Shareholders should expect corporate boards and managers to act as long-term stewards of their investment in the corporation. They also should expect that the board and management will be responsive to issues and concerns that are of widespread interest to long-term shareholders and affect the company’s long-term value. Corporations are for-profit enterprises that are designed to provide sustainable long-term value to all shareholders. Accordingly, shareholders should not expect to use the public companies in which they invest as platforms for the advancement of their personal agendas or for the promotion of general political or social causes.

In the process of policy making, all these people have their own important roles to play. The top board works on strategy formulation and policy making by making study on the past experiences and the future plannings through keen observation of market, economic, and social conditions. The management works on implementing these policies and they act as a connection link between the lower level and top management. The mangers ensure the smooth running of an organization. The share holders also act as a force with their expectations and suggestions the directors are formulating their future policies.