Corporate Governance: Direction and Control

Every company makes two kinds of decisions. Some are about running the business today: which customer to serve, which supplier to pay, which shift to staff. Others are about who decides, who checks the decision and who answers for the result. The second kind is corporate governance.

A widely quoted definition comes from the Cadbury Report, published in the United Kingdom in 1992: corporate governance is "the system by which companies are directed and controlled". Directed means the company is given a purpose, a strategy and limits. Controlled means someone checks that management is following that direction and tells the owners honestly how the company is doing.

The Organisation for Economic Co-operation and Development (OECD) describes governance as a set of relationships between a company’s management, its board, its shareholders and its other stakeholders. Governance gives the structure through which objectives are set, the means of reaching them are chosen, and performance is monitored.

Why it matters in practice

Good governance is not paperwork. It changes outcomes:

• Better decisions. A board that asks hard questions catches weak plans before money is spent.
• Trust from investors and other providers of finance. Capital is easier to raise when owners believe they will be treated fairly and told the truth.
• Protection against abuse. Clear rules on conflicts of interest and related-party deals stop insiders taking value that belongs to all owners.
• Continuity. Succession plans and clear roles mean the company survives the loss of a founder or a chief executive.

Who this course is for

The course is for new and serving directors, senior managers who report to a board, and people preparing for a first board seat in a listed company, a private company, a family business or a state-owned enterprise. It covers the board’s roles, directors’ duties, independence, committees, shareholder rights, disclosure and board effectiveness.

Two neighbouring subjects have their own courses. How risk and compliance frameworks are built is taught in Enterprise Risk Management (ISO 31000 and COSO ERM) and in the classroom course Governance, Risk and Compliance (GRC). The company secretary’s work — registers, filings and the running of meetings — is taught in Company Secretarial Practice.