Corporate Governance

Good corporate governance aims to ensure that a company is run responsibly and in the interests of its owners, while taking account of employees, customers, lenders and society. It addresses questions such as who makes decisions, how managers are held accountable and how conflicts of interest are handled.

Key elements include an effective board of directors with independent members, clear separation between the roles of chair and chief executive in many countries, strong audit and internal controls, transparent reporting, fair treatment of shareholders, sensible executive pay and protection for whistleblowers.

For example, a company with a board dominated by its chief executive’s friends, little independent oversight and unclear reporting would be considered to have weak governance, increasing the risk of poor decisions or fraud.

Many countries have corporate governance codes, such as the UK Corporate Governance Code, which listed companies must follow or explain why they do not. Weak governance has been linked to major corporate scandals, and investors increasingly consider governance when deciding where to invest. It is the G in ESG.