Good Governance is Good Business

As a responsible investor, Ontario Teachers' believes that good corporate governance is the over-arching framework for effective company management, including risk identification and mitigation.

What is Governance?

According to the Cadbury report on The Financial Aspects of Corporate Governance, a landmark study on the subject, it is "the system by which companies are directed and controlled."

In a corporate governance system, whether the company is public or private, the board of directors, management and shareholders each plays a part.

board of directors, management and shareholders

Governance Comment: Proxy Access and the Corporate Model

The board of directors has responsibility for the overall governance of the company, including supervising management, approving management's strategic plan and monitoring the plan's implementation. The board's duty is to act in the best interests of the corporation, not management or the shareholders, although by extension, if directors are acting in the best interests of the corporation, there is an alignment with shareholders.

Management is responsible to the board for developing and implementing the strategic plan and day-to-day operations of the business.

Shareholders also have responsibilities. They appoint the board and the company's auditors, satisfy themselves that that company has effective governance structures in place and monitor progress. Our RI approach addresses Ontario Teachers' roles in this regard as shareholders of both private and public enterprises.

Why Does Good Governance Matter?

It matters because companies that have good governance are able to effectively deal with their own business risks — whether they are short term in nature such as currency risk or long-term such as climate change — and are constantly on alert for new or emerging risk issues. In our experience, companies that effectively manage risk, create value over the long term.

In a company, management has responsibility for the risk management system and the board of director's role is to oversee management in this task. A risk management system identifies, evaluates and prioritizes risks and includes a coordinated plan to effectively minimize, monitor and control the probability and/or impact of the risk, or to realize on the opportunities presented by the risk.

Is Governance Simply A Matter of Structure?

No. While regulations stipulate governance processes in many markets and  the research and commentaries we provide have made it easier to understand what constitutes good governance theory, we recognize that structure alone does not create a well-governed company.

It is how the board functions within its structure that makes the difference. That's why we look at company, board and director performance and hold directors and boards accountable for decisions they make.

Good Governance is Good Business

Ontario Teachers' is actively involved with international governance-minded organizations and is a founding member of the Canadian Coalition for Good Governance.

Canadian Coalition for Good Governance logo

Canadian Coalition for Good Governance

Corporate Governance Principles and Proxy Voting Guidelines

Corporate Governance Principles and Proxy Voting Guidelines (Download PDF)


Corporate Governance