Corporate Governance concerns the system by which companies are directed and controlled, according to Organisation for Economic Co-operation and Development (OECD, 2013). It is about having companies, owners and regulators become more accountable, efficient and transparent, which in turn builds trust and confidence (World Bank, 2013).
James Wolfensohn, the 9th President of the World Bank, said that good governance of corporations will emerge as fundamental to the global economy as the proper governance of countries (UKFRC, 2011). Once considered risky and unreliable, corporate entities are now regarded as key players in supporting and driving global economy. The revenues of global top 200 largest multi-national corporations (MNCs) are equivalent to nearly 30 per cent of the world’s gross domestic product (GDP) (Share The World’s Resources, 2013). Many corporations have a turnover higher than the GDP of most nations. Of the 100 biggest global economies, 52 are corporations and 48 are countries (Share The World’s Resources, 2013). There are over 47,500 companies listed globally on 52 regulated stock market exchanges with a combined market capitalisation of $55 trillion (World Bank, 2013).
Considering the size of investments and public interest involved in the corporate sector, the economic, social, political and legal systems through which these entities operate carry a significant value to the global economy. A strong institution of good governance and business ethics considerably strengthens a corporation’s ability to compete effectively and realise its value (Tricker, 2012). Well-governed companies with high ethical values and social responsibility not only carry lower financial and non-financial risks, but also generate higher returns (European Commission, 2008).
Corporate Governance covers all activities of the board and its relationships with shareholders, management, regulators, and other legitimate stakeholders (Tricker B, 2012). It is a multi-level process that defines an organisation’s culture, its business values, ethics and social responsibility.
The concept of governance is very ancient. The term was used by Chaucer (c. 1334 – 1400), although he could not decide how it should be spelt (‘governaunce’ or ‘gournance’) . The term ‘Corporate Governance’ became popular in the late 1980s and more rapidly spread across the globe in the 1990s. A wave of corporate collapses and scandals, such as WorldCom, Enron, Parmalat, Tyco, AIG, Satyam, RBS, Barclays, JP Morgan Chase have exposed significant shortcomings in the governance of firms and the culture which support them.
Today, a Google search of the term ‘Corporate Governance’ returns around 123 million results .