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Homework answers / question archive / a) What is corporate governance? b
a) What is corporate governance?
b. Should corporate governance be narrowly defined to encompass shareholders only?
a. Definition of corporate governance:
Corporate governance is defied as a set of policies and procedures in a business, which aims to manage the entire operation and derive a better performance in the future. In detail, the corporate governance would help the management team to recognize potential risks, including both internal and external uncertainties, to improve business strength and remove the weaknesses.
In practice, the corporate governance will be guided by the top management.
b. Corporate governance and stakeholders:
The main purpose of a corporate governance is to ensure the entire operation would be run smoothly in generating more values for the business, which will increase the owner's wealth. However, to achieve this target, the corporate governance will have to ensure that all stakeholders will be able to receive their benefits for being a part of the entire chain value. The sustainable relationship with other stakeholders would support the core operation in long-term. The lack of existence of stakeholders such as employees or distributors will cease the entire operation. Hence, the corporate governance will also need to balance the interest of shareholders, managers and other stakeholders to avoid the agency conflicts between these groups. Note that, the lack of corporate governance will reduce the firm's creditability to investors and lenders.