Defining Corporate Governance in Organization or Company in Details ~ Overview of Corporate governance

We therefore define Corporate Governance as “the mechanism used to control and direct the affairs of a corporate body in order to serve and protect the individual and collective interests of all its stakeholders”.

When we talk of the mechanism used to control and direct a corporate body, we include all laws, professional codes, industrial practices and management techniques employed to conduct and regulate the affairs of a company. When we state the first objective of using these tools as protecting and serving the individual interests of each stakeholder, we refer to the appropriate application of the various agency theories that abound. And when we say that the second, equally important, objective is to protect and serve the collective interest of all stakeholders we extend the list of basic tools (laws, professional codes, industrial practices and management techniques) to include strategy development, image building, internal controls and risk management.

We will follow this definition in this book as we consider it to be a comprehensive one; but this is by no means the only definition available. Some other well-known definitions of the subject are appended below.

Gabrielle O'Donovan defines corporate governance as 'an internal system encompassing policies, processes and people, which serves the needs of shareholders and other stakeholders, by directing and controlling management activities with good business savvy, objectivity, accountability and integrity. Sound corporate governance is reliant on external marketplace commitment and legislation, plus a healthy board culture which safeguards policies and processes'. It is a system of structuring, operating and controlling a company with a view to achieve long term strategic goals to satisfy shareholders, creditors, employees, customers and suppliers, and complying with the legal and regulatory requirements, apart from meeting environmental and local community needs.

Report of SEBI committee (India) on Corporate Governance defines corporate governance as the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment to values, about ethical business conduct and about making a distinction between personal & corporate funds in the management of a company.” The definition is drawn from the Gandhi and principle of trusteeship and the Directive Principles of the Indian Constitution. Corporate Governance is viewed as business ethics and a moral duty. See also Corporate Social Entrepreneurship regarding employees who are driven by their sense of integrity (moral conscience) and duty to society. This notion stems from traditional philosophical ideas of virtue (or self-governance) Mind represents a "bottom-up" approach to corporate governance (agency) which supports the more obvious "top-down" (systems and processes, i.e. structural) perspective.

The Cadbury Report (1992) defines Corporate Governance as the system by which companies are directed and controlled.

Professor Bob Ticker says ‘if management is about running businesses, governance is about seeing that it is run properly.’

Aorta (2000) defines Corporate Governance as a set of mechanisms through which outside investors protect themselves against expropriation by the insiders. He defines insiders as both managers and controlling shareholders.

Wikipedia says ‘Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. The principal stakeholders are the shareholders, management, and the board of directors. Other stakeholders include employees, customers, creditors, suppliers, regulators, and the community at large.’

According to OECD, Corporate Governance is the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the company objectives are set, and the means of attaining these objectives and monitoring performance.