Corporate governance refers to the mechanisms, processes, practices, and relations by which corporations are controlled and operated by their boards of Corporate governance refers to the mechanisms, processes, practices, and relations by which corporations are controlled and operated by their boards of directors, managers, shareholders, and stakeholders. It defines how power and responsibilities are distributed within a company, how decisions are made and how performance is monitored. Effective corporate governance is essential for ensuring acco Board members should act on a fully informed basis, in good faith, with due diligence and care, and in the best interest of the company and the shareholders, taking into account the interests of stakeholders. Where board decisions may affect different shareholder groups differently, the board should treat all shareholders fairly. The board should apply high ethical standards. The board should fulfil certain key functions, including: Reviewing and guiding corporate strategy, major plans of action, annual budgets and business plans; setting performance objectives; monitoring implementation and corporate performance; and overseeing major capital expenditures, acquisitions and divestitures. Reviewing and assessing risk management policies and procedures. Monitoring the effectiveness of the company's governance practices and making changes as needed. Selecting, overseeing and monitoring the performance of key executives, and, when necessary, replacing them and overseeing succession planning. Aligning key executive and board remuneration with the longer term interests of the company and its shareholders. Ensuring a formal and transparent board nomination and election process. Monitoring and managing potential conflicts of interest of management, board members and shareholders, including misuse of corporate assets and abuse in related party transactions. Ensuring the integrity of the corporation's accounting and reporting system In the latest version (2022), the Executive Board of the company is held responsible for the continuity of the company and its sustainable long-term value creation. The executive board considers the impact of corporate actions on People and Planet and takes the effects on corporate stakeholders into account. In the Dutch two-tier system, the Supervisory Board monitors and supervises the executive board in this respect. === Poland === ==== Primary legislation ==== Polish Corporate Law is regulated in Code of Commercial Companies. The code regulates most of the aspects of corporate governance, incl. The board should fulfil certain key functions, including: Reviewing and guiding corporate strategy, major plans of action, annual budgets and business plans; setting performance objectives; monitoring implementation and corporate performance; and overseeing major capital expenditures, acquisitions and divestitures. Reviewing and assessing risk management policies and procedures. Monitoring the effectiveness of the company's governance practices and making changes as needed. Selecting, overseeing and monitoring the performance of key executives, and, when necessary, replacing them and overseeing succession planning. The board should be able to exercise objective independent judgement on corporate affairs. In order to fulfil their responsibilities, board members should have access to accurate, relevant and timely information. When employee representation on the board is mandated, mechanisms should be developed to facilitate access to information and training for employee representatives, so that this representation is exercised effectively and best contributes to the enhancement of board skills, information and independence. Whilst non-executive directors are thought to be more independent, they may not always result in more effective corporate governance and may not increase performance. Different board structures are optimal for different firms. Moreover, the ability of the board to monitor the firm's executives is a function of its access to information. Executive directors possess superior knowledge of the decision-making process and therefore evaluate top management on the basis of the quality of its decisions that lead to financial performance outcomes, ex ante. It could be argued, therefore, that executive directors look beyond Such incentive schemes, however, are reactive in the sense that they provide no mechanism for preventing mistakes or opportunistic behavior, and can elicit myopic behavior. Monitoring by large shareholders and/or monitoring by banks and other large creditors: Given their large investment in the firm, these stakeholders have the incentives, combined with the right degree of control and power, to monitor the management. In publicly traded U.S. corporations, boards of directors are largely chosen by the president/CEO, and the president/CEO often takes the chair of the board position for him/herself (which makes it much more difficult for the institutional owners to "fire" him/her). To reduce this risk and to enhance the perceived integrity of financial reports, corporation financial reports must be audited by an independent external auditor who issues a report that accompanies the financial statements. One area of concern is whether the auditing firm acts as both the independent auditor and management consultant to the firm they are auditing. This may result in a conflict of interest which places the integrity of financial reports in doubt due to client pressure to appease management. Tricker, Bob and The Economist Newspaper Ltd (2003, 2009), Essentials for Board Directors: An A–Z Guide, Second Edition, New York, Bloomberg Press, ISBN 978-1-57660-354-3. == External links == Media related to Corporate governance at Wikimedia Commons Quotations related to Corporate governance at Wikiquote OECD Corporate Governance Portal WorldBank/IFC Corporate Governance Portal World Bank Corporate Governance Reports