Corporate Governance
Stands for: Corporate Governance
The system of rules, practices, and processes by which a company is directed and controlled, balancing the interests of shareholders, management, and other stakeholders.
Definition
**Corporate Governance** is the framework through which boards of directors discharge their fiduciary duties: setting strategy, supervising management, allocating capital, managing risk, and reporting to shareholders. The OECD Principles of Corporate Governance, revised in 2023, and the G20/OECD Principles are the global benchmark, with local codes tailored to each jurisdiction.\n\nIn the United Kingdom the FRC Corporate Governance Code applies to premium-listed companies on a comply-or-explain basis. In the United States, governance is shaped by Delaware General Corporation Law, the Sarbanes-Oxley Act, the Dodd-Frank Act, the SEC, and the listing rules of the NYSE and Nasdaq. In the EU, the Shareholder Rights Directive II (2017/828) and the Corporate Sustainability Reporting Directive (2022/2464) extend governance requirements to large undertakings. Listed companies in Singapore follow the MAS Code of Corporate Governance, and Hong Kong listed issuers follow the HKEX Corporate Governance Code.\n\nCore building blocks include a clear separation of board chair and CEO, sufficient independent non-executive directors, board committees (audit, remuneration, nomination, risk), board evaluation, succession planning, related-party transaction controls, whistleblower channels, and stakeholder engagement.
When you'll encounter it
You will encounter corporate governance obligations the moment a company lists on a regulated market, takes regulated-activity authorisation, becomes a public-interest entity, raises institutional capital, or crosses size thresholds that bring listed-company-equivalent rules into private companies (UK Wates Principles for large private companies, EU CSRD scope expansion).
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FAQ
What is comply or explain?
A regulatory technique used in corporate governance codes (FRC Code, Hong Kong CG Code, Singapore CG Code) where companies either comply with each provision or explain in their annual report why they have not. It is contrasted with rules-based regimes like Sarbanes-Oxley, which require strict compliance with no opt-out.
Are private companies subject to corporate governance codes?
Increasingly yes. The UK Wates Principles apply to large private companies, the EU CSRD expands sustainability governance to large unlisted companies, and many jurisdictions impose audit-committee or board-independence rules above defined size thresholds. Investor demand also pushes private companies toward listed-equivalent governance ahead of an IPO.
What is the role of the audit committee?
The audit committee oversees financial reporting integrity, internal controls, internal audit, the external audit relationship, and whistleblower channels. Independence from management is essential; in most listed regimes a majority of audit committee members must be independent non-executive directors with at least one having recent and relevant financial expertise.
References
- OECD Principles of Corporate Governance (2023) https://www.oecd.org/corporate/principles-corporate-governance/
- FRC UK Corporate Governance Code https://www.frc.org.uk/library/standards-codes-policies/corporate-governance/uk-corporate-governance-code/
- EU Shareholder Rights Directive II (2017/828) https://eur-lex.europa.eu/eli/dir/2017/828/oj