Corporate Governance

Term Definition
Corporate governance is a term that refers to the set of processes, customs, policies, laws and institutions affecting the way a corporation is directed, administered or controlled. The term may also describe the company's compliance with applicable codes (corporate governance guidelines), its investment technique based on active ownership (as in corporate governance funds) or a field in economics, which studies the many issues arising from the separation of ownership and control.

Corporate governance is also inclusive of the relationships of the stakeholders, and the goals for which the corporation is governed. Corporate governance is an international business issue. In the US, corporate governance became a high profile issue as a result of corporate scandals and business failures, such as Enron and WorldCom. However, internationally, similar scandals have made corporate governance an issue that all organizations have made a business priority.

A key component of corporate governance is accountability, to shareholders, customers, employees and others. Corporations must not only comply with federal regulations and exercise fiscal responsibility but governance must extend to ethical responsibilities as well. In its simplest view, corporations should seek to comply with codes to the overall good of all constituents.

“Corporate governance is used to monitor whether outcomes are in accordance with plans; and to motivate the organization to be more fully informed in order to maintain or alter organizational activity. Primarily though, corporate governance is the mechanism by which individuals are motivated to align their actual behaviors with the overall corporate good (i.e. maximum aggregate value generated by the organization and shared fairly amongst all participants). Ozekmekci, Abdullah, Mert (2004)"

Corporate governance in the broadest sense, defines the operating rules of a company. Those rules will encompass the laws of the land, fiduciary or economic responsibility, ethical behavior, fraud prevention, risk mitigation and in general good corporate citizenry. Everyone in a corporation from the  boardroom to the front line has a role in corporate governance.

Area of Application
Business Performance Management

Related Terms
Project Governance

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