In developed countries, the foundations of the system of relations between the main actors of the corporate “spectacle” (shareholders, managers, directors, creditors, employees, suppliers, buyers, government officials, residents of local communities, members of public organizations, and movements) have already been clearly defined. Such a system is created to solve three main tasks of the corporation: ensuring its maximum efficiency, attracting investments, and fulfilling legal and social obligations.
What’s the Difference: Enterprise Governance vs. Corporate Governance
Enterprise Governance (corporate management) and corporate governance (corporate governance) are not the same. The first term refers to the activities of professional specialists in the course of business transactions. In other words, management is focused on the mechanics of doing business. The second concept is much broader: it means the interaction of many individuals and organizations related to the most diverse aspects of the company’s functioning. Corporate governance is at a higher level of company management than management. The intersection of corporate governance and oversight functions takes place only when developing a company’s development strategy.
History of occurrence of phenomena
In April 1999, in a particular document approved by the Organization for Economic Cooperation and Development (which unites 29 countries with developed market economies), the following definition of corporate governance was formulated:
Corporate governance refers to the internal means of ensuring the activities of corporations and control over them… One of the critical elements for improving economic efficiency is corporate governance, which includes a set of relations between the board (management, administration) of the company, its board of directors (supervisory board), shareholders, and other interested persons (stakeholders). Corporate governance also determines the mechanisms by which the company’s goals are formulated, and the means of achieving them and controlling its activities are determined.
The five main principles of good corporate governance were also detailed there:
- The rights of shareholders (the corporate governance system should protect the rights of shareholders).
- Equal treatment of shareholders (the corporate governance system should ensure equal treatment of all shareholders, including small and foreign shareholders).
- The role of stakeholders in corporate governance (the corporate governance system should recognize the statutory rights of stakeholders and encourage active cooperation between the company and all stakeholders in order to increase social wealth, create new jobs, and achieve financial sustainability of the corporate sector).
- Information disclosure and transparency (the corporate governance system should provide timely disclosure of reliable information about all significant aspects of the functioning of the corporation, including information about the financial position, performance results, composition of owners, and management structure).
- Responsibilities of the board of directors (the board of directors provides strategic guidance to the business, effective control over the work of managers, and is obliged to report to shareholders and the company as a whole).
Quite briefly, the basic concepts of corporate governance can be formulated as follows: fairness (principles 1 and 2), responsibility (principle 3), transparency (principle 4), and accountability (principle 5).