What is corporate governance? What is its primary objective? Why has there been a recent global emphasis on corporate governance

Corporate Governance refers to the way in which companies are governed and to what purpose. It identifies who has power and accountability, and who makes decisions. It is, in essence, a toolkit that enables management and the board to deal more effectively with the challenges of running a company. Corporate governance ensures that businesses have appropriate decision-making processes and controls in place so that the interests of all stakeholders (shareholders, employees, suppliers, customers and the community) are balanced.

Governance at a corporate level includes the processes through which a company’s objectives are set and pursued in the context of the social, regulatory and market environment. It is concerned with practices and procedures for trying to make sure that a company is run in such a way that it achieves its objectives, while ensuring that stakeholders can have confidence that their trust in that company is well founded.

As the home of good governance, the good governance is important as it provides the infrastructure to improve the quality of the decisions made by those who manage businesses. Good quality, ethical decision-making builds sustainable businesses and enables them to create long-term value more effectively.

The primary objective of sound corporate governance is to contribute to improved corporate performance and accountability in creating long-term shareholder value.The basic purpose of corporate governance is to monitor those parties within a company which control the resources owned by investors.

The primary reason for a renewed, and now nearly global, focus on corporate governance is the need for systemic economic stability and safer capital markets. In the U.S., for example, increased government regulation was spurred in large part by destabilizing corporate scandals (e.g., Enron, WorldCom, and others), the bursting of the tech bubble, and the recession of 2001-2002. Following these events, the U.S. government swung into action by enacting Sarbanes-Oxley, an Act passed by U.S. Congress in 2002 to protect investors from misleading accounting.

But government regulations aren’t the only way in which governance norms are established. Investors also influence governance in a variety of ways, including communications with corporate representatives (i.e., shareholder engagement), activism (e.g., negotiation and board representation), and voting. While the vote is an important way for investors to influence corporate governance, voting rights are by no means universal.