Corporate governance

     From Wikipedia, the free encyclopedia.

Corporate governance refers to the manner in which a corporation is directed, and laws and customs affecting that direction. It includes the laws governing the formation of firms, the bylaws established by the firm itself, and the structure of the firm. Issues of fiduciary duty and accountability are often discussed within the framework of corporate governance.

In the United States, a corporation is governed by a board of directors, which has the power to choose an executive officer, usually known as the chief executive officer. The CEO has broad power to manage the corporation on a daily basis, but needs to get board approval for certain major actions, such as hiring his/her immediate subordinates, raising money, acquiring another company, major capital expansions, or other expensive projects. Other duties of the board may include policy setting, decision making, monitoring management's performance, or corporate control.

The board of directors is nominally selected by and responsible to the shareholders, but perverse incentives have pervaded many corporate boards in the developed world, with board members beholden to the chief executive whose actions they are intended to oversee.

Corporations are chartered institutions, and have a long history in Europe and the United States. In the nineteenth century, state corporation law enhanced the rights of corporate boards to govern without unanimous consent of shareholders in exchange for statutory benefits like appraisal rights, in order to make corporate governance more efficient. Since that time, and because most corporations in America are incorporated under corporate administration friendly Delaware law, and because America's wealth has been increasingly securitized into corporate entities, the rights of owners and shareholders have become derived and dissipated. The concerns of shareholders over administration pay and stock losses periodically has led to more frequent calls for Corporate Governance reforms.

Corporate Governance concerns have been widely studied. For the United States, an analysis of these concerns has been published by the New York Society of Securities Analysts in their 2003 Corporate Governance Handbook. For an international survey of the scientific literature see Becht, Bolton and Roell 2002.

See also:

• Corporation
• Sarbanes-Oxley Act
• Securities and Exchange Commission
• Takeovers and poison pills

External sources

• International online Collection of Corporate Governance Codes (link)
• Information on Corporate Governance in Europe from the European Corporate Governance Institute
• Harvard Business School's Corporate Governance Initiative

Selected References

• Becht, Marco, Bolton, Patrick and Roell, Ailsa A., "Corporate Governance and Control" (October 2002). ECGI - Finance Working Paper No. 02/2002. SSRN 343461
• James A. Brickley, William S. Klug and Jerold L. Zimmerman, Managerial Economics & Organizational Architecture, ISBN 0072828099
• Frank H. Easterbrook and Daniel R. Fischel, The Economic Structure of Corporate Law, ISBN 0674235398
• Corporate Governance Handbook, New York Society of Securities Analysts, 2003 [1]