Corporate Governance Matters: A Closer Look at Organizational Choices and Their Consequences

2. International Corporate Governance

In Chapter 1, “Introduction to Corporate Governance,” we defined corporate governance as the collection of control mechanisms that an organization adopts to prevent or dissuade potentially self-interested managers from engaging in activities detrimental to the welfare of shareholders and stakeholders. The governance system that a company adopts is not independent of its environment. A variety of factors inherent to the business setting shape the governance system. Some of these factors include the following:

• Efficiency of local capital markets

• Extent to which the legal system provides protection to all shareholders

• Reliability of accounting standards

• Enforcement of regulations

• Societal and cultural ...