Corporate Governance can be defined as the system by which organizations are directed and controlled.
Financial aspects of corporate governance have introduced a “Code of Best Practice”
Some of the main recommendations are:
- The roles of chairman and chief executive should generally be separate. Whether or not the roles are combined, a senior non-executive director should be identified.
- Non-executive directors should comprise at least one-third of the membership of the board and the majority of non-executive directors should be independent.
- Boards should establish a Remuneration Committee, made up of independent nonexecutive directors, to develop policy on remuneration and devise remuneration packages for individual executive directors.
- Each company should establish an Audit Committee of at least three non-executive directors, at least two of them independent. The audit committee should keep under review the overall financial relationship between the company and its auditors, to ensure a balance between the maintenance of objectivity and value for money.
- Disclosure of directors’ total emoluments, including pension contributions and stock options. Separate figures for salary and performance-related elements and the basis on which performance is measured.
- Directors should report on internal controls.
The accounts should contain a statement of how the company applies the corporate governance principles and explain the policies, including any circumstances justifying departure from best practice.