Corporate Governance: What Is The Role Of Corporate Governance

Corporate governance is mainly about how an organization should be managed or governed. It hold more relevance in case of companies which have grown using equity capital taken from investors. Public company stocks using investor equity capital brings them under closer regulatory scrutiny. All affairs pertaining to an organization where the shareholders/stakeholders interests are foremost, should be managed per the relevant regulatory framework. Free flow of information amongst the shareholders is critical as they can measure the performance, growth and strategies of the organization. Since people have invested their money on the company, it is important for them to be aware of company’s performance, hence the right to choose the management

Regulatory governing bodies include the Sarbanes-Oxley Act or 2002 (SOX), SEC, and guidelines of the stock exchanges like NASDAQ, etc. Also, court judgements from different states are important as US companies are registered in their respective states. There is clear separation between ownership and management to the extent that managers could run the affairs of the organization without any fear. The Board is a single tier structure which provides strategic direction to the organization with collective decisions by both Executive and Non-Executive directors. Independent director’s main role is to perform oversight of all activities of the Management board. On the other note, directors and responsible managers pay are tied with good performances along with stock options. There are some mechanisms created to factor the impact of these stock options on the P&L

Neighboring country, Finland, had GDP per capita which is 30 times higher and technological advancements were at the highest level. Government in Estonia was committed to open markets with limited state intervention in the economy and a competitive market economy with high FDI rates, and strong economic growth. This market oriented approach led to a strong political and economic integration with Europe, though only 14 companies were listed on the Tallinn Stock Exchange’s main listing section. Privatization of companies were at its peak where 80% of its GDP as contributed by the private sector, one of the highest in Eastern Europe. Key feature of the privatization process was the usage of the tender method which resulted in the large scales to foreign investors. The Estonian Privatization Agency, created in 1993 found out that 70% of the sale of companies privatized went to foreign owners.

Estonia Board Structure:

Much like Europe, Estonia has a two-tier board structure comprising of a supervisory and management board. The role of supervisory board is to plan activities, organize management and supervise activities of the management board whereas the management board’s role is to direct the company which is the executive body as well. Management board must follow the instructions of the supervisory board and get its approval