CORPORATE GOVERNANCE

An independent director is a non-executive director who does not have any kind of relationship with the company that may affect the independence of his/her judgment. The board of directors is the primary direct stakeholder influencing corporate governance. Directors are elected by shareholders or appointed by other board members, and they represent shareholders of the company. Independent directors are selected because of 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’s interest.

Corporate governance processes include and are not limited to disclosure practices, performance measurement, executive compensation decisions, dividend policies, procedures for reconciling conflicts of interest and explicit or implicit contracts between the company and stakeholders. In some instances, board obligations stretch beyond financial optimization, as when shareholder resolutions call for certain social or environmental concerns to be prioritized.

Good corporate governance is a well-defined and enforced structure that works for the benefit of everyone concerned by ensuring that the enterprise adheres to accepted ethical standards, best practices and formal laws. As opposed to bad corporate governance, which is ambiguous, noncompliant and poorly structured which can damage the reputation or the financial health of a business. Bad Corporate Governance can cast doubt on a company’s reliability, integrity or obligation to shareholders, all of which can have implications on the firm’s financial health.