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. Internal Audit

    The examination, monitoring and analysis of activities related ...
  4. Corporate Governance Quotient - ...

    A metric developed by Institutional Shareholder Services (ISS) ...
  5. Corporate Kleptocracy

    Buzzword that describes the greed of corporate executives who ...
  6. Best Practices

    A set of guidelines, ethics or ideas that represent the most ...
RELATED FAQS
  1. Why has emphasis on corporate governance grown in the 21st century?

    Corporate governance refers to operational practices, management protocols, and other governing rules or principles by which ... Read Full Answer >>
  2. Why should investors research the C-suite executives of a company?

    C-suite executives are essential for creating and enacting overall firm strategy and are therefore an important aspect of ... Read Full Answer >>
  3. How are distribution channels generally organized?

    Distribution channels are generally organized according to specific business needs. They can be simple or complex, direct ... Read Full Answer >>
  4. What are some examples of different corporate governance systems across the world?

    Different corporate governance models have become increasingly scrutinized and analyzed as globalization takes hold in world ... Read Full Answer >>
  5. 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 >>
  6. 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 >>
  7. 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 >>
  8. 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 >>
  9. 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 >>
  10. 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

    Understanding Related-Party Transactions

    In business, a related-party transaction refers to a transaction where parties on both sides have a common interest or relationship.
  8. Economics

    Understanding Organizational Behavior

    Organizational behavior is the study of how humans interact in group environments.
  9. Investing Basics

    Explaining Tender Offers

    A tender offer is a broad public offer made by a person or company to purchase all or a portion of the shares of a publicly traded company.
  10. Investing Basics

    Explaining the Volcker Rule

    The Volcker Rule prevents commercial banks from engaging in high-risk, speculative trading for their own accounts.

You May Also Like

Hot Definitions
  1. Radner Equilibrium

    A theory suggesting that if economic decision makers have unlimited computational capacity for choice among strategies, then ...
  2. Inbound Cash Flow

    Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow ...
  3. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  4. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  5. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  6. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!