what is corporate governance 
corporate governance is the system of rules practices and processes by which a company is directed and controlled corporate governance essentially involves balancing the interests of a company s many stakeholders which can include shareholders senior management customers suppliers lenders the government and the community as such corporate governance encompasses practically every sphere of management from action plans and internal controls to performance measurement and corporate disclosure understanding corporate governancegovernance refers to the set of rules controls policies and resolutions put in place to direct corporate behavior a board of directors is pivotal in governance while proxy advisors and shareholders are important stakeholders who can affect governance communicating a company s corporate governance is a key component of community and investor relations for instance apple inc s investor relations site profiles its corporate leadership the executive team and board of directors and provides information on its committee charters and governance documents such as bylaws stock ownership guidelines and articles of incorporation 1most successful companies strive to have exemplary corporate governance for many shareholders it is not enough for a company to be profitable it also must demonstrate good corporate citizenship through environmental awareness ethical behavior and other sound corporate governance practices benefits of corporate governancecorporate governance and the board of directorsthe board of directors is the primary direct stakeholder influencing corporate governance directors are elected by shareholders or appointed by other board members and charged with representing the interests of the company s shareholders the board is tasked with making important decisions such as corporate officer appointments executive compensation and dividend policy in some instances board obligations stretch beyond financial optimization as when shareholder resolutions call for certain social or environmental concerns to be prioritized boards are often made up of a mix of insiders and independent members insiders are generally major shareholders founders and executives independent directors do not share the ties that insiders have they are typically chosen for their experience managing or directing other large companies independents are considered helpful for governance because they dilute the concentration of power and help align shareholder interests with those of the insiders the board of directors must ensure that the company s corporate governance policies incorporate corporate strategy risk management accountability transparency and ethical business practices a board of directors should consist of a diverse group of individuals including those with matching business knowledge and skills and others who can bring a fresh perspective from outside the company and industry the principles of corporate governancewhile there can be as many principles as a company believes make sense some of the most common ones are corporate governance modelsthere are many types of corporate governance that a company might follow some use a traditional hierarchical leadership structure and others are more flexible different corporate governance models may be found throughout the world here are a few of them this model can take various forms such as the shareholder stewardship and political models the shareholder model is the principal model at present the shareholder model is designed so that the board of directors and shareholders are in control stakeholders such as vendors and employees though acknowledged lack control management is tasked with running the company in a way that maximizes shareholder interest importantly proper incentives should be made available to align management behavior with the goals of shareholders owners the model accounts for the fact that shareholders provide the company with funds and may withdraw that support if dissatisfied this is supposed to keep management working effectively the board will usually consist of both insiders and independent members although traditionally the board chairperson and the ceo can be the same this model seeks to have two different people hold those roles the success of this corporate governance model depends on ongoing communications among the board company management and the shareholders important issues are brought to shareholders attention important decisions that need to be made are put to shareholders for a vote u s regulatory authorities tend to support shareholders over boards and executive management two groups represent the controlling authority under the continental model they are the supervisory board and the management board in this two tiered system the management board is composed of company insiders such as its executives the supervisory board is made up of outsiders such as shareholders and union representatives banks with stakes in a company also could have representatives on the supervisory board the two boards remain entirely separate the size of the supervisory board is determined by a country s laws and can t be changed by shareholders national interests have a strong influence on corporations with this model of corporate governance companies can be expected to align with government objectives this model also greatly values the engagement of stakeholders as they can support and strengthen a company s continued operations the key players in the japanese model of corporate governance are banks affiliated entities major shareholders called keiretsu who may be invested in common companies or have trading relationships management and the government smaller independent individual shareholders have no role or voice together these key players establish and control corporate governance the board of directors is usually made up of insiders including company executives keiretsu may remove directors from the board if profits wane the government affects the activities of corporate management via its regulations and policies in this model corporate transparency is less likely because of the concentration of power and the focus on the interests of those with that power 