SAJJAD PURVEZ - Role of CEO in Corporate Governance

February 21, 2011 --
In today's globalized economy, corporate play a major role in shaping quality of life of the society as a whole. According to Nobel Laureate, Amartya Sen, "Market forces alone are not sufficient for equitable distribution and some sort of intervention is required, be it political or from business houses, towards society." 

Companies should be responsible to the society for their activities and owe to the environment in which they operate. Consequently, environmental protection, transparency among stake-holders, education, health, employee welfare activities and compliance with the legal requirements, has gained importance for corporate world-wide.

A company should take a balanced view of the components of corporate social responsibility and implement the strategies in coherence with the vision, mission and values of the company.

Corporate Governance is the method by which a corporation is directed, administered, or controlled. 

Corporate governance includes the laws and customs affecting that direction, as well as the goals for which the corporation is governed. The principal participants are the share-holders, management and the board of directors. Other participants include regulators, employees, suppliers, partners, customers, constituents (for elected bodies) and the general community. 

As a result of the separation of stake-holder influence from control in modern organizations, a system of corporate governance controls is implemented on behalf of stake-holders to reduce agency costs and information asymmetry. Corporate governance is used to monitor whether outcomes are in accordance with plans; and to motivate the organization to be more fully informed in order to maintain or alter organizational activity. Primarily, though, corporate governance is the mechanism via which individuals are motivated to align their actual behaviors with the overall corporate good (i.e., maximum aggregate value generated by the organization and shared fairly amongst all participants).

Key elements of good corporate governance principles include honesty, trust and integrity, openness, performance orientation, responsibility and accountability, mutual respect, and commitment to the organization.

Of importance is how directors and management develop a model of governance that aligns the values of the corporate participants and then this model periodically for its effectiveness. In particular, senior executives should conduct themselves honestly and ethically, especially concerning actual or apparent conflicts of interest, and disclosure in financial reports. 

Equitable Treatment of Share-holders:
The CEO should respect the rights of share-holders and help share-holders to exercise those rights. He can help share-holders exercise their rights by effectively communicating information that is understandable and accessible, and encouraging share-holders to participate in general meetings.

Interests of Other Stake-holders:
The CEO should recognize that they have legal and other obligations to all legitimate stake-holders.

Role & Responsibilities of the Board

The board needs a range of skills and understanding - to be able to deal with various business issues and have the ability to review and challenge management performance. It needs to be of sufficient size and have an appropriate level of commitment to fulfill its responsibilities and duties. There are issues about the appropriate mix of executive and non-executive directors. The key roles of Chairperson and CEO should not be shared.

Integrity & Ethical Behaviour:
The CEO should develop a code of conduct for their directors and executives that promotes ethical and responsible decision-making. It is important to understand, though, that systemic reliance on integrity and ethics is bound to eventual failure.

Disclosure & Transparency:

The CEO should be ready to clarify the company's position to the share-holders and the board and management to provide share-holders with a level of accountability. They should also implement procedures to independently verify and safe-guard the integrity of the company's financial reporting. Disclosure of material matters concerning the organization should be timely and balanced to ensure that all investors have access to clear, factual information.

Issues involving Corporate Governance Principles include: -
Oversight of the preparation of the entity's financial statements.
Internal controls and the independence of the entity's auditors.
Review of the compensation arrangements for the chief executive officer and other senior executives.
The way in which individuals are nominated for positions on the board.
The resources made available to directors in carrying out their duties.
Oversight and management of risk.

More courtesy.... http://www.coolavenues.com/mba-journal/human-resources/role-ceo-corporate-governance