Corporate governance is the system by which companies are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the company, such as, the board of directors, management, shareholders and other stakeholders and spells out the rules and procedures for making decisions in corporate affairs. By doing this, it also provides the structure through which the company objectives are set and the means of attaining those objectives and monitoring performance
Corporate governance includes the relationship of a company to its shareholders and to society; the promotion of fairness, transparency and accountability; reference to mechanisms that are used to “govern” managers and to ensure that the actions taken are consistent with the interests of key stakeholder groups. The key points of interest in corporate governance therefore include issues of transparency and accountability, the legal and regulatory environment, appropriate risk management measures, information flows and the responsibility of senior management and the board of directors.
The primary goal of corporate governance is to protect shareholders and other stakeholders from corporate and managerial misconduct. Effective corporate governance measures are essential to prevent corporate scandals, fraud, and potential civil and criminal liability. Such measures enhance the reputation of an organization and makes it more attractive to investors, creditors, consumers, and donors. On the other hand, bad corporate governance can create an environment conducive to fraud and ultimately lead to the demise of an organization and significantly harm its stakeholders.
Whether a company is private, public, nonprofit, or government, all those charged with its governance should assess their structure and needs to develop an effective corporate governance approach. The underlying goal in a corporate governance system is to ensure that the decision makers in a company, such as its directors and management, are acting in the best interests of the company’s stakeholders.
In order to achieve its Vision, SECP has designed and implemented a strategy to develop into an efficient and dynamic regulatory body that fosters principles of good governance in the corporate sector, ensures proper risk management procedures in the capital market, and protects investors through responsive policy measures and effective enforcement practices. SECP has issued corporate governance frameworks for designated classes of companies including listed companies, public sector companies, and insurance companies, for mandatory compliance. Besides, corporate governance principles for non-listed companies have been issued for guidance and voluntary compliance. These are available for reference at the given link.
Principles of Corporate Governance