Corporate governance

Definition

Corporate governance is the system of rules, practices, and processes by which a company is directed and controlled. It involves balancing the interests of a company's many stakeholders, such as shareholders, management, customers, suppliers, financiers, government, and the community.

5 Must Know Facts For Your Next Test

1. The Board of Directors plays a crucial role in corporate governance by overseeing management and ensuring the company's long-term success.
2. Good corporate governance promotes transparency, accountability, and ethical business conduct.
3. Shareholders have the right to vote on key issues such as electing board members and approving major corporate actions.
4. Independent directors are often included on boards to provide unbiased oversight.
5. Corporate governance frameworks can vary by country but generally aim to protect investor interests and enhance corporate performance.

Review Questions

• What is the primary role of the Board of Directors in corporate governance?
• How does good corporate governance benefit a company?
• Why are independent directors important in corporate governance?

Related terms

Board_of_Directors: A group of individuals elected to represent shareholders and oversee major decisions for a corporation.

Shareholders: Individuals or entities that own shares in a corporation and have voting rights on major company matters.

Transparency: The practice of openly disclosing information that affects stakeholders' decisions regarding a company.