IIBM Institute of Business
Management

Corporate Governance

www.iibmindia.in

Chapter 1
Corporate Governance

Corporate governance refers to the system by which corporations are directed and controlled.
The governance structure specifies the distribution of rights and responsibilities among different participants in the corporation (such as the board of directors, managers, shareholders, crors, auditors, regulators, and other stakeholders) and specifies the rules and procedures for making decisions in corporate affairs. Governance provides the structure through which corporations set and pursue their objectives, while reflecting the context of the social, regulatory and market environment. Governance is a mechanism for monitoring the actions, policies and decisions of corporations. Governance involves the alignment of interests among the stakeholders.
There has been renewed interest in the corporate governance practices of modern corporations, particularly in relation to accountability, since the high-profile collapses of a number of large corporations during 2001–2002, most of which involved accounting fraud. Corporate scandals of various forms have maintained public and political interest in the regulation of corporate governance. In the U.S., these include Enron Corporation and MCI Inc. (formerly WorldCom).
Their demise is associated with the U.S. federal government passing the Sarbanes-Oxley Act in
2002, intending to restore public confidence in corporate governance. Comparable failures in
Australia are associated with the eventual passage of the CLERP 9 reforms. Similar corporate failures in other countries stimulated increased regulatory interest (e.g., Parmalat in Italy).
Other definitions
Corporate governance has also been defined as "a system of law and sound approaches by which corporations are directed and controlled focusing