Corporate Governance

AAA

DEFINITION of 'Corporate Governance'

The system of rules, practices and processes by which a company is directed and controlled. Corporate governance essentially involves balancing the interests of the many stakeholders in a company - these include its shareholders, management, customers, suppliers, financiers, government and the community. Since corporate governance also provides the framework for attaining a company's objectives, it encompasses practically every sphere of management, from action plans and internal controls to performance measurement and corporate disclosure.

INVESTOPEDIA EXPLAINS 'Corporate Governance'

Corporate governance became a pressing issue following the 2002 introduction of the Sarbanes-Oxley Act in the U.S., which was ushered in to restore public confidence in companies and markets after accounting fraud bankrupted high-profile companies such as Enron and WorldCom.

Most companies strive to have a high level of corporate governance. These days, it is not enough for a company to merely be profitable; it also needs to demonstrate good corporate citizenship through environmental awareness, ethical behavior and sound corporate governance practices.

VIDEO

Loading the player...
RELATED TERMS
  1. Checks And Balances

    The various procedures set in place to reduce mistakes or improper ...
  2. Shareholders' Agreement

    An arrangement among a company's shareholders describing how ...
  3. Corporate Kleptocracy

    Buzzword that describes the greed of corporate executives who ...
  4. Stakeholder

    A party that has an interest in an enterprise or project. The ...
  5. Stock Compensation

    A way corporations use stock options to reward employees. Stock ...
  6. Sarbanes-Oxley Act Of 2002 - SOX

    An act passed by U.S. Congress in 2002 to protect investors from ...
RELATED FAQS
  1. How do companies identify and manage business risk?

    In each stage of the business life cycle, companies face both internal and external risks that can have detrimental effects ... Read Full Answer >>
  2. What are the different groups involved in corporate governance?

    To identify the particular groups involved in corporate governance, the scope of corporate governance needs to be established ... Read Full Answer >>
  3. What are some examples of current liabilities?

    The current liabilities of a company consist of debt obligations that are due within one year and as such, play an important ... Read Full Answer >>
  4. What are the three phases of a completed initial public offering (IPO) transformation ...

    While some large and successful companies are still privately-owned, many companies aspire toward becoming a publicly-owned ... Read Full Answer >>
  5. What is a staggered board?

    A staggered board of directors (also known as a classified board) is a board that is made up of different classes of directors. ... Read Full Answer >>
  6. To whom was the term "corporate kleptocracy" first applied?

    The term "corporate kleptocracy" is believed to have originated in a 2004 report by the Special Committee of the Board of ... Read Full Answer >>
Related Articles
  1. Investing

    Corporate Governance

    Corporate governance refers to the formally established guidelines that determine how a company is run. The company’s board of directors approves and periodically reviews the guidelines, which ...
  2. Investing Basics

    The Basics Of Corporate Structure

    CEOs, CFOs, presidents and vice presidents: learn how to tell the difference.
  3. Mutual Funds & ETFs

    What Does Your Mutual Fund Say About You?

    How your fund votes on proxy issues will reveal whether it's acting in your best interest and according to your beliefs.
  4. Mutual Funds & ETFs

    Proxy Voting Gives Fund Shareholders A Say

    You have the right to take part in important company decisions - even if you cannot attend the meetings.
  5. Options & Futures

    Governance Pays

    Learn about how the way a company keeps its management in check can affect the bottom line.
  6. Personal Finance

    Five Companies Leading The Green Charge

    Corporations that reduce their environmental footprint anticipate large long-term gains.
  7. Investing Basics

    What is a Minority Interest?

    A minority interest is an ownership or equity interest of less than 50% of an enterprise.
  8. Professionals

    Understanding Operations Management

    Operations management is concerned with converting materials and labor into goods and services as efficiently as possible to maximize profits.
  9. Investing News

    A New Corporate Governance Initiative In Japan

    Expectations are low that Japan can create a corporate governance climate that meets global standards, but a new initiative is aimed at doing just that.
  10. Stock Analysis

    Will American Airlines Fall Back To Earth In 2015?

    The airline industry enjoys blockbuster profits, and American Airlines Group has been a key beneficiary of the favorable trends that have lifted stocks.

You May Also Like

Hot Definitions
  1. Coupon

    The interest rate stated on a bond when it's issued. The coupon is typically paid semiannually. This is also referred to ...
  2. Redemption

    The return of an investor's principal in a fixed income security, such as a preferred stock or bond; or the sale of units ...
  3. Standard Error

    The standard deviation of the sampling distribution of a statistic. Standard error is a statistical term that measures the ...
  4. Capital Stock

    The common and preferred stock a company is authorized to issue, according to their corporate charter. Capital stock represents ...
  5. Unearned Revenue

    When an individual or company receives money for a service or product that has yet to be fulfilled. Unearned revenue can ...
Trading Center