Development of Corporate Governance

Corporate governance has became a buzz word among public companies (and some large private companies). But what exactly is it?

The concept of corporate governance made traction in 1984 when Bob Tricker provided a description that, ‘If management is about running business, governance is about seeing that it is run properly. All companies need governing as well as managing.’ Since then corporate governance has been defined in many ways.

The timeline goes a bit like this:

In 1992, the Cadbury Committee defined corporate governance as ‘the system by which companies are directed and controlled’.

Subsequently, in 1999, the Organisation for Economic Co-operation and Development (OECD) published its Corporate Governance Principles (revised in 2004), where it defined corporate governance as 'a set of relationships between a company’s management, its board, its shareholders and other stakeholders' as well as 'the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined’.

In 2004, the New Partnership for African Development (NEPAD) Declaration on Democracy, Political, Economic and Corporate Governance defined corporate governance to be ‘concerned with ethical principles, values and practices that facilitate the balance between economic and social goals and between individual and communal goals. The aim is to align as nearly as possible the interests of individuals, corporations and society within the framework of sound governance and the common good.’

Following that in 2015, the G20/OECD issued a new set of corporate governance principles through which should ‘help build an environment of trust, transparency and accountability necessary for fostering long-term investment, financial stability and business integrity, thereby supporting stronger growth and more inclusive societies’.

Then in 2016, the King IV Report on Corporate Governance for South Africa defined corporate governance as the exercise of ethical and effective leadership by the governing body towards achievement of ethical cultures, good performance, effective control and legitimacy.

In the same year, the UK Corporate Governance Code 2016 provided a description that ‘the purpose of corporate governance is to facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of the company’. It made reference to the definition of corporate governance from the earlier Cadbury Report, and claimed that the 2016 Code was still within the context of the definition - ‘Corporate governance is therefore about what the board of a company does and how it sets the values of the company. It is to be distinguished from the day to day operational management of the company by full-time executives.’

Two years after, the code was updated again, the 2018 UK Corporate Governance Code expanded on the definition, recognising that companies did not exist in isolation: ‘To succeed in the long-term, directors and the companies they lead need to build and maintain successful relationships with a wide range of stakeholders.’

Our thoughts

Over the years, there have been many attempts trying to define corporate governance as a whole. Here at Lambros Industries, we think of it as an evolving concept by which a company is directed to achieve its overall objectives. It is concerned with relationship, structures, processes, information flows, controls, decision-making and accountability. As an evolving concept, we should expect the definition of corporate governance to change over time (and for a good reason) to accommodate different public and private concerns.

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