Many companies strive to make their corporate governance policies as visible as possible to reinforce their commitment to the issues mentioned above. For example, Nike, like many large corporations today, has a page on its website devoted to explaining its corporate governance policies. It lists its board members, explains how they are appointed and compensated, and provides details of Nike’s corporate governance guidelines. It also includes a letter explaining the company’s code of conduct from Nike president and chief executive officer (CEO) John Donahoe. Like many companies, Nike also regularly reports on its corporate governance in its communication with investors. “In fiscal 2019, we also assessed and enhanced our committee charters,” Mark G. Parker, chairman of Nike’s board of directors, said in a proxy statement from that year. “Specifically, we updated our Corporate Responsibility, Sustainability & Governance Committee charter to more explicitly highlight the committee’s continuing oversight of our integrated Purpose Offense, a unified approach to our focus on and commitment to sustainability, social and community impact, and diversity and inclusion.”
Who Ensures Corporate Governance?
The overriding objective of corporate governance is to align the interests of different parties and ensure that all parties work to achieve a company’s common goals. There are different corporate structures designed to enforce corporate governance guidelines. Companies, both public and private, may have any or all of these entities in place to monitor adherence to these guidelines.
Top Management Team
Typically led by a CEO, this group may also include a chief operating officer (COO), chief financial officer (CFO), chief technology officer (CTO), and a chief marketing officer (CMO).
Board of Directors
A group of elected or appointed directors whose purpose is to advise and monitor the firm’s top management team on behalf of shareholders, the board represents the interests of shareholders and stakeholders. A board often has a chairperson. Board members may be a blend of internal (company employees) and external individuals.
Shareholders
Most publicly held companies hold an annual general meeting to which shareholders are invited to attend and pose questions to the board of directors or top management team. In some cases, shareholders get to cast votes on corporate issues such as executive pay. Shareholders expressing dissatisfaction with some aspect of the company’s corporate governance—a practice known as shareholder activism—may also be effective in forcing change.
What It Means for Individual Investors
Investors want to be assured that the companies they own shares in have strong corporate governance guidelines in place. In addition to carefully reviewing financials in a company’s 10-K or 10-Q reports or other disclosed documents, smart investors will complete a thorough review of a company’s corporate governance policies. Careful consideration should be given to how a company has handled past conflicts between corporate actions and its operating guidelines, or how it responded to shareholder complaints. Investors should aim to determine whether a board of directors has the necessary power to hold top management teams accountable. More than ever, the majority of investors want to own shares of companies that will do well as an investment while also adhering to policies that make them good corporate citizens. Carefully reviewing a company’s corporate governance policies can help assure a prospective investor that this is the case.
