Corporate governance is a broad term that has to do with the manner in which the rights and responsibilities are shared among owners, managers and shareholders of a given company. In essence, the exact structure of the corporate governance will determine what rights, responsibilities, and privileges are extended to each of the corporate participants, and to what degree each participant may enjoy those rights. Generally, the foundation for any system of corporate governance will be determined by several factors, all of which help to form the final form of governing the company.
Within any corporation, the structure of corporate governance begins with laws that impact the operation of any company within the area of jurisdiction. Companies cannot legally operate without a corporate structure that meets the minimum requirements set by the appropriate government jurisdiction. All founding documents of the company must comply with these laws in order to be granted the privilege of incorporation. In many jurisdictions, these documents are required by law to contain at least the seeds of how the company will be structured to allow the creation of a balance of power within the corporation.
Much of the basis for corporate governance is found in the documents that must be prepared and approved before incorporation can take place. These documents help to form the basis for the final expression of the balance of power between shareholders, stakeholders, management, and the board of directors. The bylaws, articles of incorporation, and the company charter will all include details that determine who has what authority in the decision making process of the company.
Along with the laws of the land and the founding documents, corporate governance is further refined by the drafting of formal policies that not only recognize the assignment of powers in accordance to the bylaws and corporate charter, but also help to further define how those powers may be employed. This helps to allow the company some degree of flexibility in maintaining a balance of power as the company grows, without undermining the rights and privileges inherent in each type of corporate participation.
