Contemporary discussions of corporate governance tend to refer to principles raised in three documents released since 1990: The Cadbury Report (UK, 1992), the Principles of Corporate Governance (OECD, 1998 and 2004), the Sarbanes-Oxley Act of 2002 (US, 2002). The Cadbury and OECD reports present general principles around which businesses are expected to operate to assure proper governance. The Sarbanes-Oxley Act, informally referred to as Sarbox or Sox, is an attempt by the federal government in the United States to legislate several of the principles recommended in the Cadbury and OECD reports.
- Rights and equitable treatment of shareholders: Organizations should respect the rights of shareholders and help shareholders to exercise those rights. They Can help shareholders exercise their rights by openly and effectively communicating information and by encouraging shareholders to participate in general meetings.
- Interests of other stakeholders: Organizations should recognize that they have legal, contractual, social, and market driven obligations to non-shareholder stakeholders, including employees, investors, creditors, suppliers, local communities, customers, and policy makers.
- Role and responsibilities of the board: The board needs sufficient relevant skills and understanding to review and challenge management performance. It also needs adequate size and appropriate levels of independence and commitment.
- Integrity and ethical behavior: Integrity should be a fundamental requirement in choosing corporate officers and board members. Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making.
- Disclosure and transparency: Organizations should clarify and make publicly known the roles and responsibilities of board and management to provide stakeholders with a level of accountability. They should also implement procedures to independently verify and safeguard the integrity of the company’s financial reporting. Disclosure of material matters concerning the organization should be timely and balanced to ensure that all investors have access to clear, factual information.
8 principles of corporate governance are
- Principle 1 – Lay solid foundations for management and oversight: Companies should establish and disclose the respective roles and responsibilities of board and management.
- Principle 2 – Structure the board to add value: Companies should have a board of an effective composition, size and commitment to adequately discharge its responsibilities and duties.
- Principle 3 – Promote ethical and responsible decision-making: Companies should actively promote ethical and responsible decision-making.
- Principle 4 – Safeguard integrity in financial reporting: Companies should have a structure to independently verify and safeguard the integrity of their financial reporting.
- Principle 5 – Make timely and balanced disclosure: Companies should promote timely and balanced disclosure of all material matters concerning the company.
- Principle 6 – Respect the rights of shareholders: Companies should respect the rights of shareholders and facilitate the effective exercise of those rights.
- Principle 7- Recognise and manage risk: Companies should establish a sound system of risk oversight and management and internal control.
- Principle 8- Remunerate fairly and responsibly: Companies should ensure that the level and composition of remuneration is sufficient and reasonable and that its relationship to performance is clear.