What Is Good Corporate Governance?

Good corporate governance refers to methods, laws and policies that direct, control and administers important functions of a corporation. Principal stakeholders and board of directors within the corporation are the ones who manage the principal corporation. Good corporate governance ensures the goals of the management stays within the lines of agreement of the stakeholders. Most people think there is no difference between stakeholders and shareholders in a corporation however, there is a difference and that is why it's important to manage things correctly. While working toward maximizing shareholders value and fairness, good corporate governance system ensures their rights are protected at all times. Since Enron and WorldCom were such failures for big business, corporate governance has reinforced its protection considerably. Stakeholders and shareholders alike are driven to improve corporate governance, although some of these changes come from federal mandates. What most stakeholders want is concise information with a clear and feasible link to overall business strategy.

Corporate efficiency is shaped by good corporate governance and strengthens employment stability, retirement security, and the endowments of orphanages, hospitals and universities. Good corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the company objectives are set, and the means of attaining those objectives and monitoring performance. Good corporate governance is about promoting corporate fairness, transparency and accountability.

Because there seems to be so many definitions about good corporate governance I picked one definition and tried to explain it to the best I can. Businesses need to be controlled and directed, because most corporations are pretty large, good corporate governance tells which groups of people are to do what. Board managers, stakeholders, and shareholders each have a say in the rules and procedures of the company. This gives structure to the company and ensures each group is watching the other to keep things in line and keeps everybody honest. This also ensures the company will prosper because each group has to maintain certain strength in order for everything to work like a well oiled machine. If one group goes down, the other groups help restore it back to running the way it's suppose to. If one group fails then eventually all groups fail and then nobody prospers.

Corporate governance is the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the company objectives are set, and the means of attaining those objectives and monitoring performance", OECD April 1999. OECD's definition is consistent with the one presented by Cadbury [1992, page 15].