The overall system, including the practices, processes, and rules, by which a corporation is operated, controlled, and directed is known as corporate governance. Corporate governance is a complex concept, as it requires the balancing of the multiple interests held by the company’s stakeholders, which includes its management team, shareholders, customers, vendors, financiers, its community, and the government entities, that regulate it.
A company also uses its corporate governance to provide its framework to work towards meeting the company’s goals and objectives, so it encompasses every area of the company’s management structure, including internal controls, corporate disclosure, and performance measurement.
Corporate Governance Definition
Corporate governance is the combination of controls, rules, procedures, and policies that are enacted to control the behavior and actions of a corporation. A corporations shareholders and their proxies are key stakeholders who may, indirectly, impact the governance of corporations, but they are not corporate governance examples.
A major piece of the puzzle in corporate governance is the corporation’s board of directors. The board heavily influences the direction of the corporation and ensures the necessary controls, rules, and procedures are put into to place and are adhered to by the corporation’s management team. An important piece of both investor relations and regulatory compliance is communicating company’s corporate governance to the public, which is why most corporations include information on its leadership team, including board of directors and executives, as well as its governance documents, such as stock ownership guidelines, bylaws, and articles of incorporation, on its website.