Essentials of Corporate Governance

Chapter 6. Good Corporate Governance: An Introduction

After reading this chapter, you will be able to

• Understand the concept of Corporate Governance

• Understand why Corporate Governance is important

• Understand the contributing factors that lead to corporate crime

• Understand the models of Corporate Governance

• Understand the principles of Corporate Governance

A corporation is established within a clear hierarchical framework. The corporation is owned by the shareholders and run by the executive. Between these two parties lies the board: the group elected by the shareholders to represent their interests and oversee the running of the company.

The board is responsible for appointing the executive. It also is responsible for monitoring the executive’s progress, behaviors, and outcomes. This means that an ongoing problem within the executive represents a deeper issue: a problem with the board.

The board of directors can fail in its duty to oversee the corporation’s affairs in several ways. The board can be ineffective at detecting and rectifying problems within the executive. It can also fail in its duty when its members forget their allegiance to the shareholders and instead serve the interests of the executive or themselves.

Whether purposeful or accidental, a board that neglects its duty to watch over the company and represent the interests of shareholders should not be able to continue in the same manner. Allowing it to do so could result in activities and events akin to those seen in the corporate ...