Organisational Governance & Corporate Governance

By David Chekroun & Drew Shagrin

International Business Law Journal (IBLJ) Revue de Droit des Affaires Internationales (RDAI) · N°6 · 2023 · pp. 767-806

Organisations are changing and so is governance. Organisations have always faced challenges as they fulfill their somewhat constant missions, but the specific fulfilment of those missions varies with the circumstances, and today’s circumstances are nothing short of extraordinary. From the coronavirus crisis to rapid societal changes, from geopolitical uncertainty to the slowdown of globalisation, and from cybersecurity threats to the increasing importance of ESG and climate change considerations, organisations of all kinds – profit-motivated companies (including corporations, partnerships, and profit-motivated cooperatives), non-governmental organisations (including not-for-profit corporations and cooperatives), and governmental organisations (including international intergovernmental organisations ) – have to adapt and refine their governance practices. 

The concept of governance is difficult to define, and it varies from country to country, industry to industry, and even organisation to organisation, but at its most basic, it is about how power is exercised over an entity. In other words, governance is how people in authoritative positions hold themselves accountable to their stakeholders.

For organisational governance in general, the most accurate and self-explanatory definition is undoubtedly the one provided by the International Organization for Standards in its standard on social responsibility. Article 6.2 of ISO 26000 highlights that 

Organizational governance is the system by which an organization makes and implements decisions in pursuit of its objectives.

Organizational governance can comprise both formal governance mechanisms based on defined structures and processes and informal mechanisms that emerge in connection with the organization’s culture and values, often influenced by the persons who are leading the organization. Organizational governance is a core function of every kind of organization as it is the framework for decision making within the organization.

Governance systems vary, depending on the size and type of organization and the environmental, economic, political, cultural and social context in which it operates. These systems are directed by a person or group of persons (owners, members, constituents or others) having the authority and responsibility for pursuing the organization’s objectives.”

For corporations in particular, the need for governance arises from the fact that the shareholders, like the other stakeholders, do not operate the corporation directly. Instead, they appoint directors to handle the corporation’s business, and thus a conflict arises: the directors must formulate strategy, develop policymaking, and supervise management while remaining accountable to the shareholders and other stakeholders. Establishing rules, practices and procedures through which shareholders and other stakeholders can ensure director accountability is the central goal of corporate governance. 

Perhaps the most authoritative definition of corporate governance is found in the G20/OECD Principles of Corporate Governance: “Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders.  Corporate governance also provides the structure through which the objectives of a company are set, and the means of attaining those objectives and monitoring performance are determined.”  

The number of stakeholders recognised as such in different organisations has increased quite enormously over the past several years, and the legal relationships among these stakeholders have become more complex. In the corporate governance ecosystem in particular, the stakeholders are divided into the shareholders, who through their shares have specific economic and decision-making rights in a corporation and all the other parties with a stake in the company for any of several reasons other than share ownership. In short, the stakeholders are all those who affect or are affected by the corporation: not only the shareholders – common shareholders, preferred shareholders, activist shareholders, institutional shareholders – but also boardmembers, employees, creditors, customers, suppliers of goods and services, government agencies, and neighbours in the communities where the organisation operates. 

The increasing number of recognised stakeholders has given rise to a specialised legal framework, and has prompted identifiable trends in organisational governance in general and corporate governance in particular.  This biannual column entitled “Governance” and subtitled “Organisational Governance & Corporate Governance” aims to address this specialised legal framework, and to provide readers with useful information about all relevant aspects of organisational governance.  The column is divided into 4 sections: 

  1. Governance theories, philosophies, concepts, models, and regulatory frameworks, for both organisations in general and corporations in particular.
  2. The missions and duties of organisational boards and of the people who serve on them, as well as the processes by which boards and board members get selected, carry out their missions and duties, review and improve their performance, and get compensated.
  3. The interests, rights, and duties of all other stakeholders, as well as the procedures by which those other stakeholders pursue their interests, exercise their rights, and perform their duties.
  4. Special situations and issues, spanning a broad range from corporate mergers and acquisitions to organisational paralysis in intergovernmental organisations.

Within these four issue areas, we aim to provide short articles and comments on recent developments of likely interest to a broad range of readers. Those readers—you—include not only lawyers working in-house and in law firms, but also members of organisational boards, senior executives who work closely with boards, and all other professionals, legal and otherwise, with an interest in the crossroads of law and governance.

We also aim to facilitate access to useful resources. Bibliographies will allow readers to pursue independent follow-up research, with links to online resources where possible.  Book reviews will help readers discover new books, and blog and website reviews will help readers discover valuable digital resources.  Annals, digests, and similar summaries of conferences and seminars will share insights from relevant events that readers were unable to attend.

In order to achieve these goals, the International Business Law Journal has created a team that includes an international community of business and policy leaders, corporate directors, lawyers, and academics. 

For this second edition, the contributors are Megha Bansal, David Chekroun, Martine Derdevet, Pascal Durand-Barthez, Eric Seassaud, Drew Shagrin and Antoine Verdillon.

©2024 ICG Institute for Corporate Governance @ ESCP

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