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The principles of corporate governance


We have considered the need for governance for all organisations. In the last chapter we considered the various forms of governance and the codes which have been created. In this chapter we want to look in more detail into the principles -firstly of governance generally and then as applied to corporations.

The principles of governance

There are 8 principles which underpin every system of governance:


Transparency, as a principle, necessitates that information is freely available and directly accessible to those who will be affected by such decisions and their enforcement. Transparency is of particular importance to external users of such information as these users lack the background details and knowledge available to internal users of such information. Equally therefore the decisions which are taken and their enforcement must be done in a manner that follows rules and regulations. Transparency therefore can be seen to be a part of the process of recognition of responsibility on the part of the organisation for the external effects of its actions and equally part of the process of redistributing power more equitably to all stakeholders.

Here is where another issue arises which is conflict of interests. So it should be noticed that transparency doesn't mean to reveal proprietary information, which belong and are owned only by the organisation. This is the right of a company to compete in a healthy environment so it can freely keep such information as confidential.

As a whole any kind of privileged information or that which would breach legal, commercial, security or personal privacy obligations should not be considered as requiring to be transparent. However, it is also important for citizens and civil society organisations to have public information available, so that they can ask questions, raise issues, and if needed challenge the information itself . Therefore an enterprise should reveal information related to such matters as its objectives, missions and visions, relationships and authorities, responsibilities, revenues, and its rules and standards.

Rule of law

This is a corollary of the transparency principle. It is apparent that good governance requires a fair framework of rules of operation. Moreover these rules must be enforced impartially, without regard for power relationships. Thus the rights of minorities must be protected10. Additionally there must be appeal to an independent body as a means of conflict resolution, and this right of appeal must be known to all stakeholders.11

It means that an enterprise should obey all the related rules and regulations already in force in the community. The scale of this community depends on the diversity and breadth of a company's activities. So it can be a district, a city, a region, a country or the world. Although very easy to say, this is actually a very disputable principle. Not all the regulations already devised and in force are necessarily conforming to the requirements of good governance. And abiding by such rules does not always mean to be socially responsible.

Such conflict can arise from the reluctance or inability of some countries to abide by the internationally agreed principles such as those of human rights, labor practice, etc.. This is due to nonconformities related to religion, culture, power concerns, and the like. So a powerful country claiming to govern the world resists adopting environmental agreements, and the other ever-developing avoids laws regarding child labor; whereas the other heralding the world to entail prescriptions for the world's prosperity oppresses its nation according to its religious laws not conforming the human rights. Therefore despite the emphasis of ISO 26000, it is not always easy to both comply with legal requirements and to be socially responsible.

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