“Corporate governance” comprises the private and public institutions – both formal and informal – which together govern the relationship between those who manage corporations (“corporate insiders”) and those who invest resources in them. These institutions typically include a country’s corporate laws, securities regulations, stock-market listing requirements, accepted business practices and prevailing business ethics; ... Corporate “insiders” can include dominant stockholders (i.e., owner-managers, or shareholders with the power directly to control management) as well as managers per se. Investors can include suppliers of equity finance (shareholders), suppliers of debt finance (creditors), suppliers of relatively firm-specific human capital (employees) and suppliers of other tangible and intangible assets that corporations may use to operate and grow. Perhaps more fundamental to understanding the meaning of corporate governance than any list of institutions, however, is to grasp the purpose of corporate governance. In all countries, the institutions of corporate governance serve two indispensable and ultimately indissociable objectives: enhance the performance and ensure the conformance of corporations in the country. • The institutions of corporate governance facilitate and stimulate the performance of corporations – the principal forces behind economic wealth and growth in society – by creating and maintaining a business environment that motivates managers and entrepreneurs to maximize firms’ operational efficiency, returns on investment, and long-term productivity growth. • The institutions of corporate governance ensure corporate conformance with investors’ and society’s interests and expectations by limiting the abuse of power, the stealing or siphoning-off of corporate assets, the moral hazard, and the significant wastage of corporate-controlled resources (so-called “agency problems”). These are the losses and distortions that the self-serving behaviour of managers and other corporate insiders can be expected to impose on investors and society in the absence of sound corporate governance. • Simultaneously, the institutions of corporate governance establish the means to monitor managers’ behaviour to ensure corporate accountability and provide for the cost-effective protection of investors’ and society’s interests vis-à-vis corporate insiders. Corporate governance can be understood, in sum, as serving both to determine what society considers to be acceptable standards of corporate behaviour, and to ensure that corporations comply with those standards.
Posted on: Wed, 03 Dec 2014 04:28:37 +0000
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