Corporate Finance, 5th Edition
by Pierre Vernimmen, Pascal Quiry, Maurizio Dallocchio, Yann Le Fur, Antonio Salvi
Chapter 43 Corporate governance
Or on being politically correct
You may be surprised to find a chapter on corporate governance in a corporate finance textbook. Corporate governance is not, strictly speaking, a financial issue and is based on the legal considerations underlying the framework within which a company is run. However, as you may by now have come to expect, we approach the subject mainly from the angle of value. In other words, we attempt to find answers to the question “Will good corporate governance foster the creation of value and will poor corporate governance necessarily destroy value?”
Problems with corporate governance arise as a result of changes in the capital structure and organisation of companies. Corporate governance is not an issue for companies where the manager is the sole shareholder. But gradually the founding shareholder’s stake will be diluted and corporate governance issues will arise between the majority shareholder, who is also usually the manager, and minority shareholders. When a company starts out as family owned and evolves into a company with a fragmented shareholding of institutional and retail investors, new problems of corporate governance will arise. These will relate to control that the shareholders have over the managers, who will have less freedom as a result of the fragmented shareholding structure.
Section 43.1 What does corporate governance mean?
1. Definition
Broadly speaking, corporate governance is the organisation of ...