What Is Corporate Governance? - dummies

By Kenneth Boyd, Lita Epstein, Mark P. Holtzman, Frimette Kass-Shraibman, Maire Loughran, Vijay S. Sampath, John A. Tracy, Tage C. Tracy, Jill Gilbert Welytok

Simply put, corporate governance is the framework under which a corporation operates. At its core, this framework involves establishing financial controls (policies and procedures that govern how the company’s finances are handled), showing accountability to the shareholders, and making sure corporate management acts in the best interest of the shareholders and the community in which it operates.

Part of a corporation’s self-regulation includes fully disclosing information on its financial statements. The subject of corporate governance could fill an entire book. But here are just a couple examples of ways that corporations need to self-regulate:

  • Acting in the best interests of the shareholders: The corporation should operate so that the shareholders can expect a reasonable rate of return. For example, the corporation doesn’t pay excessive bonuses to corporate officers that reduce cash flow to such a point the business can’t effectively operate.

  • Being sensitive to environmental concerns: The corporation shouldn’t pollute or cause health issues through its business waste or other by-products for those living in the communities in which the business operates.