Corporate governance

Corporate governance is a term used to describe the systems used to control corporations. It is often an issue because there are clear agency conflicts between the interests of shareholders and management.

Attempts to enforce good corporate governance come from a variety of sources. There are statutory measures, such as the clear legal duties that directors have to act in shareholder's interests. There are also corporate governance codes and recommendations that are not compulsory, but which listed companies are under very strong pressure to adopt; they give shareholders minimum standards that they can demand from management.

Current provisions recommended in the UK to ensure good corporate governance include:

  • separation of the roles of chairman and managing director
  • a minimum proportion of non-executive directors
  • committees of non-executive directors to supervise sensitive issues such as directors' remuneration and audit.

Standards of corporate governance have become more formalised and transparent over the years because of pressure, from both shareholders and regulators, in response to visible abuses by directors.