Regardless of the fact that corporate governance was not a very well used term prior to the last two decades, it is widely accepted that ‘corporate governance’ as a concept is playing a crucial role nowadays in the business world. Moreover, the term corporate governance, which originated in the United States, is not only nowadays current issue- it goes back to the emergence of the ‘limited liability company’. However, it can be seen very clearly that the issues of corporate governance are scattered between company law and practice, especially financing, incorporation, management and promotion, in the view of Keay. 71
Corporate governance has many definitions depending on the perspective; therefore, it may be hard to find a certain definition for the term corporate governance. Moreover, some researchers referring the lack of agreed definition to the multi-facet orientation “due to its multi-facet orientation, a single unanimously agreed upon definition does not exist as yet”.72 In the view of Parkinson, there is a range of meanings for the term 'corporate governance', and it can be divided into two meanings for the present purposes: Firstly, with regard to the 'public interest' where the company itself is being governed. This is attributed to the societal attempts to control the behaviour of the company, which can be seen via the state's regulations including employment law, consumer law and environmental law requirements. Secondly, the company-level
71 A Keay, Enlightened Shareholder Value Principle and Corporate Governance, The (Routledge,
2012) Page: 1.
72 S Ahmad and R Omar, 'Basic Corporate Governance Models: A Systematic Review' (2016) 58
governance that is described by Parkinson as the one that is familiar to company lawyers.73 Claessens has divided the defintions on offer into two types as well. The first one “concerns itself with a set of behavioural patterns” while the second one “concerns itself with the normative framework”. 74 Alternatively, corporate governance definitions can be divided into a narrow view and broad view in the opinion of Allen. The narrow view is typically used in the UK and the USA, which takes the interests of shareholders as the priority by ensuring the operation of the firm for their interests, with standard mechanisms such as the unitary board of directors and executive compensation. The broad view, which is often stressed by Germany, Japan and France, goes beyond the narrow view as it concerns corporate governance ensuring society’s resources are used efficiently.75 The following paragraphs will provide examples of the meaning, definitions, and understanding of corporate governance.76 Lowry and Reisberg, for example, think that corporate governance is about alignment; ensuring the alignment between the interests of the managers and
73 J. E. Parkinson, 'Corporate governance and the regulation of business behaviour' in S MacLeod (ed), Global Governance and the Quest for Justice, vol 2 (Global Governance and the Quest for Justice, Hart 2006) Page: 1.
74 S Claessens, 'Corporate Governance and Development' (2006) 21 The World Bank Research
Observer 91.
75 F Allen, 'Corporate Governance in Emerging Economies' (2005) 21 Oxford Review of Economic
Policy 164.
the shareholders. The alignment concerns the mechanisms or the legal system of corporate governance.77
The Committee on the Financial Aspects of Corporate Governance, which is known as the Cadbury Committee, defines corporate governance in its simplest form as: “corporate governance is the system by which companies are directed and controlled”78. The roles are split between the parties, for example, appointing auditors and directors is the responsibility of the shareholders, whereas the board of directors' role is to govern their companies.79 Monks and Minow define corporate governance in more detail, as a “relationship among various participants in determining the direction and performance of corporations"80. Parkinson has defined corporate governance as “the process of supervision and control (of ‘governing’) intended to ensure that the company’s management acts in accordance with the interests of the shareholders”.81
The OECD states that corporate governance “involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders”82. A broadened OECD definition contains more detail, as it is defined broadly as follows:
77 J Lowry and A Reisberg, Pettet's Company Law: Company Law & Corporate Finance (4 edn
pearson, 2012) P:141.
78 Cadbury Committee, The Financial Aspects of Corporate Governance (Gee, 1992). 79 Ibid.
80 R Monks and N Minow, Corporate Governance (3rd edn Malden, 2004) Page: 1.
81 J. E. Parkinson, Corporate Power and Responsibility : Issues in the Theory of Company Law
(Clarendon Press, 1993) Page: 159.
“refers to the private and public institutions, including laws, regulations and accepted business practices, which together govern the relationship, in a market economy, between corporate managers and entrepreneurs (“corporate insiders”) on one hand, and those who invest resources in corporations, on the other”.83
The World Bank states that corporate governance “refers to the structures and processes for the direction and control of companies. Corporate governance concerns the relationships among the management, Board of Directors, controlling shareholders, minority shareholders and other stakeholders”84; whereas IFC has defined the corporate governance as “the structures and processes by which companies are directed and controlled”.85 As mentioned above, it may be difficult to find a definition that can describe all aspects of corporate governance, as the different perspectives cause variations among the definitions. 86 However, generally speaking, all definitions agree on main themes: control and supervision of the company and/or of management as stated by Law and Wong.87 Omar think that the reason for not finding an agreement upon one corporate governance definition is because of its
83 C P. Oman, Corporate Governance and National Development ([OECD Development Centre],
2001).
84 The World Bank,'Corporate Governance Country Assessment : Kingdom of Saudi Arabia' (Report
on the Observance of Standards and Codes (ROSC), 2009).
85 IFC official website, 'Corporate Governance Overview' (<www.ifc.org/corporategovernance>
accessed 1/7/2015).
86 R Monks and N Minow, Corporate Governance (3rd edn Malden, 2004) Page: 1.
87 C Law and P Wong, 'Corporate Governance: A Comparative Analysis between the UK and China'
multi-facet orientation.88 However, the OECD definition may be the most accepted corporate governance definition.89
88 S Ahmad and R Omar, 'Basic Corporate Governance Models: A Systematic Review' (2016) 58
International Journal of Law and Management 73.
89 P O. Mulbert, 'Corporate Governance of Banks' (2009) 10 European Business Organization Law