Principles Of Corporate Governance

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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.
  • 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 policymakers.
  • Role and responsibilities of the board: The board needs sufficient relevant skills and understanding to review and challenge management performance.
  • 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.

8 principles of corporate governance are

  • Principle 1 – Lay solid foundations for management and oversight
  • Principle 2 – Structure the board to add value
  • Principle 3 – Promote ethical and responsible decision-making
  • Principle 4 – Safeguard integrity in financial reporting
  • Principle 5 – Make timely and balanced disclosure
  • Principle 6 – Respect the rights of shareholders
  • Principle 7- Recognise and manage risk
  • Principle 8- Remunerate fairly and responsibly

 

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