What is Corporate Governance?

In a large company, the CEO and the executive board as a whole report hierarchically to the board of directors. This body has a chairman, the chairman of the board, in addition to several executive directors, all appointed by the shareholders, of whom they are representatives.

The chairman and directors of the board are elected at a shareholders’ meeting, which is the company’s highest body.

The name given to the functions exercised by this board of directors is ‘to govern’. The board of directors governs the company, does corporate governance, while the CEO and other executive officers manage it.

The board is part of an organizational structure that also includes the fiscal council, the external audit, the governance secretariat, the audit committee, among others that this board deems necessary. This is the structure of Corporate Governance.

The figure below shows a typical organizational structure for Corporate Governance.

The theme Corporate Governance has interested many people as a career possibility or career continuity.

Companies of all types – large, medium and small, private and public, listed on the stock exchange or not, family members or not – have planned to implement or develop a Corporate Governance structure .

This is because, among other advantages, an adequate structure and good corporate governance practices facilitate the conduct of business, obtaining financing and achieving the desired results.

For this reason, the search for professionals with knowledge in the subject has increased. If you are one of those interested in the topic, this article presents five basic questions and their answers for you to learn more about what Corporate Governance is and what its trends are.

Let’s go to the questions …

What is Corporate Governance?

Corporate Governance is what the name implies, it is the government of the company, the government of the corporation or, as they say in European Portuguese, it is the government of society. The company has an organizational structure with a group of executives who manage it and, above them, is the corporate governance structure, which governs them.

The ‘government’ of the company is not the same as the government of a country or a state, it is the government of society, but it has several similar points, such as:

  • Its members – chairman and directors of the board – are elected by the shareholders, but, unlike other governments, in reason of ‘one share, one vote’, that is, the votes are proportional to the number of shares of each shareholder,
  • There are external legal and regulatory guarantees and internal agreements, regulations and policies to guarantee the right of minorities, that is, small shareholders, those who have less shares in proportion to the total,
  • The board represents the group of shareholders in matters related to the company and is the one who appoints or approves the CEO and other executive officers,
  • The board generally approves the budget or, at least, the guidelines for the annual budget and is also responsible for providing the independent external audit and approving the annual accountability.

Some authors have close definitions. Some understand Corporate Governance as a ‘system’, which is correct because it is a system of government, others define it as a ‘set of processes, customs, policies, laws, regulations and institutions’, which is also correct because it is what this government system needs to function.

What is the role of Corporate Governance?

In summary, the role of Corporate Governance is:

  • Structure the relationship between shareholders, board of directors, executive officers, supervisory and control bodies and other  stakeholders,
  • Define policies, standards, and procedures for this organizational structure based on legislation, regulations and best practices,
  • Define strategic guidelines, objectives and performance parameters for the company.

The Corporate Governance structure is responsible for providing parameters for the relationship between partners, managers and other actors in its economic (products and services) and financial (shares and other securities) markets, as well as defining policies, rules and procedures to guarantee rights and define responsibilities.

This activity is complicated, as there are partners with a lot of power, the ‘majority’, with a majority of the shares, and the minority partners, with less power and that, eventually, need legal and regulatory support to continue investing and have guarantees that their investment is safe.

What are the principles of Corporate Governance?

The Corporate Governance theme is of global importance. People and companies from all over the world invest, more and more, outside their country of origin. This is the so-called globalization phenomenon of money capital, which consists of the flow of capital between countries.

Of course, the economies of the countries that receive this foreign money are interested in these people and companies continuing to invest and are concerned with providing guarantees for this to continue.

The ‘free world’, while giving people and companies freedom to invest wherever they want and stimulating competition, is concerned with providing guarantees to those who invest and punishing those who eventually commit fraud.

In 2015, international corporate governance principles were approved by the G-20 group, the group of the 20 largest economies on the planet that has an agenda of meetings to discuss global issues, and by the OECD, which is the Organization for Economic Cooperation and Development with 36 member countries and which aims to stimulate economic progress and world trade.

There are six principles that establish the commitment of the signatory countries, including Brazil:

  1. The Corporate Governance structure must promote transparent and fair markets, as well as the efficient allocation of resources. It must be consistent with the rule of law and support effective supervision and enforcement.
  2. The Corporate Governance structure must protect and facilitate the exercise of shareholders’ rights and guarantee equal treatment of them, including minority and foreigners. All shareholders must have the opportunity to obtain effective compensation in case of violation of their rights.
  3. The Corporate Governance structure must provide solid incentives across the entire investment chain and enable equity markets to function in a way that contributes to good Corporate Governance practices.
  4. The Corporate Governance structure must recognize the rights of  stakeholdersestablished by law or through mutual agreements, and encourage active cooperation between companies and their  stakeholders  in the creation of wealth, jobs and the sustainability of financially sound companies.
  5. The Corporate Governance structure must ensure the disclosure of timely and accurate information on all relevant issues related to the company, including the financial situation, performance, shareholder structure and Corporate Governance.
  6. The Corporate Governance structure must guarantee the strategic orientation of the company, the effective control of the management team by the board of directors, and the accountability of this board to society and its shareholders.

These principles are available on the OECD Brazil website at https://www.oecd.org/publications/principios-de-governo-das-sociedades-do-g20-ocde-9789264259195-en.htm .

How do laws and regulations develop?

The laws and regulations related to Corporate Governance have been developed worldwide to adapt to the market and to ensure investor safety.

This development received a lot of American and European influence. From the United States, laws such as the  Security Act  of 1933, the  Security Exchange Act  of 1934 and the  Sarbane-Oxley Act  of 2002 from the United States served as a basis and inspiration for legislation in many countries, as well as regulatory bodies such as the SEC ( Security The Exchange Commission , the American Securities and Exchange Commission) and the New York Stock Exchange ( NYSE ,  New York Stock Exchange ) have largely influenced the regulation of several countries.

From Europe, what draws the most attention is integration. Several stock exchanges in European Union countries, which work in an integrated manner, have common laws and regulations regarding Corporate Governance.

Brazil has updated legislation and regulations, in line with global trends and agreements. Of course, the normative and regulatory actions of CVM (Comissão de Valores Mobiliários) and B3 (São Paulo Stock Exchange) stand out. Evidence of modernity can be seen when accessing the B3 website , in the guidelines for the levels of Corporate Governance, mainly for the level called ‘Novo Mercado’.

What is the profile of the desired professional?

At this point, before concluding, it is necessary to talk about professional opportunities for those who want to work with Corporate Governance.

In addition, of course, to the most senior positions of the boards of directors and executive officers, which are reserved for more experienced personnel, there are opportunities in the market for people from different fields of education, with emphasis on Law, Administration, Accounting and International Relations. .

Law graduates are required to, for example, provide guidance on the Corporate Governance system, including legislation, regulations and the preparation of documents such as internal regulations, policies, codes of conduct , agreements between partners, among others.

In Administration, professionals are required for tasks such as, for example, process development, management support, marketing, finance, HR, among others.

In all cases, it is important to note that the candidate’s ability for the relationship is a highly sought after characteristic.

by Abdullah Sam
I’m a teacher, researcher and writer. I write about study subjects to improve the learning of college and university students. I write top Quality study notes Mostly, Tech, Games, Education, And Solutions/Tips and Tricks. I am a person who helps students to acquire knowledge, competence or virtue.

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