Corporate Governance

Corporate governance is a term that refers broadly to the rules, processes, or laws by which businesses are operated, regulated, and controlled. The term can refer to internal factors defined by the officers, stockholders or constitution of a corporation, as well as to external forces such as consumer groups, clients, and government regulations. Corporate governance refers to the system through which the behaviour of a company is monitored and controlled. The significance of corporate governance is that in modern economies large corporations are typically associated with a division of labour between the parties who provide the capital (i.e., shareholders) and the parties who manage the resources (i.e., management).

A well-defined and enforced corporate governance provides a structure that, at least in theory, works for the benefit of everyone concerned by ensuring that the enterprise adheres to accepted ethical standards and best practices as well as to formal laws. To that end, organizations have been formed at the regional, national, and global levels.

In recent years, corporate governance has received increased attention because of high-profile scandals involving abuse of corporate power and, in some cases, alleged criminal activity by corporate officers. An integral part of an effective corporate governance regime includes provisions for civil or criminal prosecution of individuals who conduct unethical or illegal acts in the name of the enterprise.

The first large-scale official efforts in the OECD countries resulted in the publication of the Cadbury Report (1992) in the United Kingdom of Great Britain and Northern Ireland. The objective of the Cadbury Committee was to investigate how large public companies should adopt corporate governance guidelines with a focus on the procedures of financial report production and the role of the accounting profession. Issues included the role of the board of directors, standards of financial reporting,...