is corporate governance?
governance has succeeded in attracting a good deal of public interest because of
its apparent importance for the economic health of corporations and society in
general. However, the concept of corporate governance is poorly defined because
it potentially covers a large number of distinct economic phenomenon. As a
result different people have come up with different definitions that basically
reflect their special interest in the field. It is hard to see that this
'disorder' will be any different in the future so the best way to define the
concept is perhaps to list a few of the different definitions rather than
just mentioning one definition.
Corporate governance is a field in economics that investigates how to secure
efficient management of corporations by the use of incentive mechanisms,
such as contracts, organizational designs and legislation. This is often
limited to the question of improving financial performance, for example, how
the corporate owners can secure that the corporate managers will deliver a
competitive rate of return,
Click here to see how this definition can be illustrated
as a transaction cost based theory of the managerial agency problem.
governance deals with the ways in which suppliers of finance to corporations
assure themselves of getting a return on their investment”, The Journal
of Finance, Shleifer and Vishny [1997, page 737].
governance is the system by which business corporations are directed and
controlled. The corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the corporation,
such as, the board, managers, shareholders and other stakeholders, and
spells out the rules and procedures for making decisions on corporate
affairs. By doing this, it also provides the structure through which the
company objectives are set, and the means of attaining those objectives and
monitoring performance", OECD April 1999.
OECD's definition is consistent with the one presented by Cadbury [1992,
governance - which can be defined narrowly as the relationship of a company
to its shareholders or, more broadly, as its relationship to society
-….", from an article in Financial Times .
governance is about promoting corporate fairness, transparency and
accountability" J. Wolfensohn, president of the Word bank, as quoted by
an article in Financial Times, June 21, 1999.
commentators take too narrow a view, and say it (corporate governance) is
the fancy term for the way in which directors and auditors handle their
responsibilities towards shareholders. Others use the expression as if it
were synonymous with shareholder democracy. Corporate governance is a topic
recently conceived, as yet ill-defined, and consequently blurred at the
edges…corporate governance as a subject, as an objective, or as a regime
to be followed for the good of shareholders, employees, customers, bankers
and indeed for the reputation and standing of our nation and its economy”
Maw et al. [1994, page 1].