Corporate Governance: An Introduction
An important part of the modern company law debate focuses on corporate governance, in particular for listed companies. Although it would not be possible to go into the details of such a debate, it is useful to have at least an introduction to the topic. This will permit an understanding of existing EU provisions concerning corporate governance, as well as how the EU Commission's Action Plans of 2003 and of 2012 propose to foster good corporate governance and enhance its quality in Europe.
What does ‘corporate governance’ mean?
In December 1992 the UK Cadbury Committee, chaired by Sir Adrian Cadbury, released their final report, including a definition of corporate governance. Sir Adrian Cadbury later contributed to the OECD Principles of corporate governance, first issued in 1999 and now in their third edition (2015): the OECD Principles also provide a definition of corporate governance. Both the Cadbury Report and the OECD Principles are referred to in the Commission's Action Plans of 2003 and of 2012; the 2012 Action Plan includes a comprehensive definition of corporate governance.
Cadbury Committee Report, Financial Aspects of Corporate Governance (1992), § 2.5
Corporate governance is the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place. The responsibilities of the board include setting the company's strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship. The board's actions are subject to laws, regulations and the shareholders in general meeting.
OECD Principles of Corporate Governance (1999), Preamble
Corporate governance involves a set of relationships between a company's management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.
Action Plan: European Company Law and Corporate Governance – A Modern Legal Framework for More Engaged Shareholders and Sustainable Companies (2012)
Corporate governance defines relationships between a company's management, its board, its shareholders and its other stakeholders. It determines the way companies are managed and controlled.
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