What is a Corporate Governance Statement?

A corporate governance statement is an overview of the processes by which a company is directed. Typically, it is directed at shareholders and potential shareholders in the interest of complete corporate transparency, a concept that implies that all the shareholders should know exactly how the company is being operated. Further, a corporate governance statement is to ensure accountability of those in charge of a company, mostly to ensure the confidence of its investors in those in control of the direction of the company.

A typical corporate governance statement includes a brief statement outlining the mission of the company and defining its core values. It will also highlight the qualities inherent in the structure of the organization of the company that are designed to limit abuse of power by the board of directors. For instance, the statement might explain that the company has a policy of keeping their board of directors mostly independent from the officers of the company to ensure that there is no conflict of interest with management of the organization, such as the determination of salaries of officers.

A corporate governance statement will also speak to the roles and responsibilities of the officers of the company. It will explain all the duties that are vested in each individual officer and how the board of directors checks their power. The board may also have granted power in certain committees, which will be explained in the statement. Actual effects those committees have had on the direction of the organization will also be explained.

Because the corporate governance statement is generally for the benefit of the shareholders, how the board and the officers interact with the shareholders is detailed in the statement. Further, it often details the way individual shareholders may directly interact with the board or its officers. Major shareholders are often granted the right to meet individually with directors to air any concerns. Regardless of their stake, a shareholder’s right to be heard is an important aspect of the typical corporate governance statement.

Perhaps most important in a corporate governance statement is the specific policies and procedures that the company has in place to prevent abuse of power. The methods of financial reporting and disclosure, risk management, and internal control procedures should all be detailed if the statement is that of a large organization. If any of these procedures are not covered in the statement itself, it should reference the documents where shareholders may examine these procedures.