Internal Corporate Governance Controls


Internal corporate governance controls (internal controls) play a vital role in ensuring the success of a business organization and preventing corporate fraud.

Internal control activities that ensure proper corporate governance include:

  • Monitoring by board
  • Internal audits and robust policies
  • Proper balance of power
  • Performance based remuneration
  • Monitoring by large shareholders and other stakeholders
Monitoring by board

The board should monitor the corporate governance of the company through continuous review of its internal structure. This ensures that there are clear lines of accountability for management throughout the company.

The board should also monitor and review:

  • corporate strategy
  • major plans of action
  • risk policy
  • annual budgets and business plans
  • corporate performance
  • major capital expenditures, acquisitions and divestitures
  • governance practices and changes
  • selection, compensation and succession planning of executives
  • key executive and board remuneration

Internal audits and robust policies

Regular internal audits have to be carried out by auditors employed by the organization in order to assess the health of governance processes, operational health and financial reporting.

Robust internal control policies should also be implemented to ensure that the company lives up to its obligations to investors, stakeholders, employees, the environment, the government and the public at large.

Proper balance of power

A separation of powers and responsibilities between management groups ensures that there’s a proper system of checks and balances in place, with one group implementing policies and another ensuring that these are implemented and functioning in the right manner.

Performance based remuneration

Executive pay, a contentious topic following the 2007-08 financial crisis, is expected to be linked to performance in order to ensure that management is rewarded for operating the company keeping in mind the rights of investors and other stakeholders.

Monitoring by large shareholders and other stakeholders

Individuals and institutions that have large shareholdings (and financial institutions such as banks who are creditors) have the right to monitor the performance of the management, acting as an effective internal control measure.

ComplianceOnline Training on Corporate Governance

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