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Corporations are their own entities, however so are the board of directors, the managers, the employees and the shareholders. Each component that makes up the corporate entity has their own interests, levels of risk aversion, motivations to perform, ethics and levels of accountability and the board has a key role in balancing the interests of these components. More often than not, the various components that make up the firm are not interdependent and are, in fact, disparate. The question therefore arises of how does a board balance these interests without forcing compromise? With compromise would come de-motivation and poor performance from the people compromising their vested interest, therefore the board are required to implement and manage a system that is equal to all components of the firm and presents the organisation as a single entity.

Corporate governance, such as systems, procedures, policies, processes and rules, ties individuals together into a single entity so the corporation is presented to the world as one being. Secondary to this, corporate governance ensures there is a level of accountability for individuals, and an accountability of the organisation to the shareholders. Therefore, corporate governance is concerned with the performance of the company as a whole, not just the performance of individual components. For this reason, the board must be the entity in control of corporate governance as, due to the separation of ownership and management, corporate governance cannot be left to be the responsibility of individuals within the firm.

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Summary of this Wiki

Foundations & Frameworks (previous)

The Purpose of the Board (Next)

Board Structure & Size

Accountability & Ethics

Concluding Statement

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