Corporate governance

Corporate governance refers to the systems of rules, practices, and processes by which a company is directed and controlled. According to the OECD, the corporate governance structure specifies the distribution of rights and responsibilities among the different participants in the organization – such as the board, managers, shareholders and other stakeholders – and lays down the rules and procedures for decision-making. 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 (The OECD Principles of Corporate Governance). Therefore, corporate governance encompasses practically every sphere of management, from action plans and internal controls to performance measurement and corporate disclosure.

Corporate governance and CSR

Corporate governance is an important concept in the context of corporate social responsibility and is considered to be one of CSR’s core topics. An organization, willing to be responsible, should have a well-functioning governance system to be able to introduce CSR and sustainable development principles into its day-to-day activities and monitor their implementation. 

Effective governance system of a responsible company should ensure that the principles of transparency, accountability, ethical behavior, respect for stakeholder interests, respect for international norms of behavior, respect for the rule of law, and respect for human rights be incorporated into the decision making and implementation processes. 

According to international standard on social responsibility ISO 26000, an effective corporate governance system ensures the organization’s ability to: 

• Develop strategies, objectives, and targets that reflect its commitment to social responsibility
• Demonstrate leadership commitment and accountability
• Create a system of economic and non-economic incentives related to performance on social responsibility
• Use financial, natural and human resources efficiently
• Promote a fair opportunity for underrepresented groups to occupy senior positions in the organization
• Balance the needs of the organization and its stakeholders, including immediate needs and those of future generations
• Establish a two-way communication processes with its stakeholders, identifying areas of agreement and disagreement and negotiating to resolve possible conflicts
• Encourage effective participation of all levels of employees in the organization's social responsibility activities
• Balance the level of authority, responsibility and capacity of people who make decisions on behalf of the organization
• Keep track of the implementation of decisions to ensure that these decisions are followed in a socially responsible way and to determine accountability for the results of the organization's decisions and activities, either positive or negative
• Periodically review and evaluate the governance processes of the organization; adjust the processes according to the outcome of the reviews and communicate changes throughout the organization. 

One of the three core ESG components, (Environmental, Social, Governance Issues) corporate governance is applied as one of important criteria in various responsible investing strategies.   

Corporate governance issues also have an important role in international standards on sustainability reporting.

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