Why corporate governance is important.

The word governance may well have been used by Chaucer in 14th century England, but the phrase ‘corporate governance’ has only been commonly used since the 1980s.

Major corporate failures such as Enron, WorldCom, HIH, the dot.com crisis, the global financial crisis, and the Royal Commissions into institutional abuse of children and the banking sector, have increased governance expectations.

The community requires corporations to improve the way in which corporate governance is practiced.

That is, more is expected from companies behaving as good citizens.

Although not a legal term, ‘corporate governance’ does carry the sense of needing to be defined. It regularly arises in actions or Commissions as something lacking in practice.

Yet the concept of corporate governance has struggled to have a single definition. Early definitions were based around corporate governance being the ‘system by which companies are directed and controlled’ (Cadbury Report, 1992; King, 1994).

The Australian Stock Exchange recently broadened the scope of the concept of corporate governance to ‘the framework of rules, relationships, systems, and processes within and by which authority is exercised and controlled in corporations’.

Similarly, the G20/OECD principles discuss how the monitoring of performance against structure of organisational objectives can deliver better
governance outcomes.

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