Corporate governance is the set of processes, customs, policies, laws and institutions affecting the way a corporation is directed, administered or controlled. A policy is a deliberate plan of action to guide decisions and achieve rational outcome(s A corporation is a separate legal entity usually used to conduct business Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. Governance relates to decisions that define expectations, grant power, or verify performance. The principal stakeholders are the shareholders, management and the board of directors. A mutual shareholder or stockholder is an Individual or company (including a Corporation) that legally owns one or more shares of Other stakeholders include employees, suppliers, customers, banks and other lenders, regulators, the environment and the community at large.
Corporate governance is a multi-faceted subject.  An important theme of corporate governance is to ensure the accountability of certain individuals in an organization through mechanisms that try to reduce or eliminate the principal-agent problem. Accountability is a concept in Ethics with several meanings It is often used synonymously with such concepts as answerability enforcement responsibility, blameworthiness In political science and Economics, the principal-agent problem or agency dilemma treats the difficulties that arise under conditions of incomplete and asymmetric A related but separate thread of discussions focus on the impact of a corporate governance system in economic efficiency, with a strong emphasis on shareholders welfare. Economic efficiency is used to refer to a number of related concepts There are yet other aspects to the corporate governance subject, such as the stakeholder view and the corporate governance models around the world (see section 9 below). The stakeholder theory is a theory of organizational management and Business ethics that addresses morals and values in managing an organization
There has been renewed interest in the corporate governance practices of modern corporations since 2001, particularly due to the high-profile collapses of a number of large U. S. firms such as Enron Corporation and Worldcom. Enron Creditors Recovery Corporation (formerly Enron Corporation, former NYSE ticker symbol ENE was an American Energy company based in In 2002, the US federal government passed the Sarbanes-Oxley Act, intending to restore public confidence in corporate governance. The Sarbanes-Oxley Act of 2002 ( also known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly called SOX or Sarbox
In A Board Culture of Corporate Governance business author Gabrielle O'Donovan defines corporate governance as 'an internal system encompassing policies, processes and people, which serves the needs of shareholders and other stakeholders, by directing and controlling management activities with good business savvy, objectivity and integrity. Sound corporate governance is reliant on external marketplace commitment and legislation, plus a healthy board culture which safeguards policies and processes'.
O'Donovan goes on to say that 'the perceived quality of a company's corporate governance can influence its share price as well as the cost of raising capital. Quality is determined by the financial markets, legislation and other external market forces plus the international organisational environment; how policies and processes are implemented and how people are led. External forces are, to a large extent, outside the circle of control of any board. The internal environment is quite a different matter, and offers companies the opportunity to differentiate from competitors through their board culture. To date, too much of corporate governance debate has centred on legislative policy, to deter fraudulent activities and transparency policy which misleads executives to treat the symptoms and not the cause. '
It is a system of structuring, operating and controlling a company with a view to achieve long term strategic goals to satisfy shareholders, creditors, employees, customers and suppliers, and complying with the legal and regulatory requirements, apart from meeting environmental and local community needs.
Report of SEBI committee (India) on Corporate Governance defines corporate governance as the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. Securities and Exchange Board of India ( SEBI) is the Regulator for the Securities Market in India It is about commitment to values, about ethical business conduct and about making a distinction between personal & corporate funds in the management of a company. ” The definition is drawn from the Gandhian principle of trusteeship and the Directive Principles of the Indian Constitution. Corporate Governance is viewed as ethics and a moral duty.
In the 19th century, state corporation lawless enhanced the rights of corporate boards to govern without unanimous consent of shareholders in exchange for statutory benefits like appraisal rights, to make corporate governance more efficient. The 19th century of the Common Era began on January 1, 1801 and ended on December 31, 1900, according to the Gregorian calendar Since that time, and because most large publicly traded corporations in the US are incorporated under corporate administration friendly Delaware law, and because the US's wealth has been increasingly securitized into various corporate entities and institutions, the rights of individual owners and shareholders have become increasingly derivative and dissipated. The concerns of shareholders over administration pay and stock losses periodically has led to more frequent calls for corporate governance reforms.
In the 20th century in the immediate aftermath of the Wall Street Crash of 1929 legal scholars such as Adolf Augustus Berle, Edwin Dodd, and Gardiner C. The twentieth century of the Common Era began on The Wall Street Crash of 1929, also known as the ’29 Crash, the Crash of 1929, the Great Crash of 1929, the Great Crash of October 1929 Adolf Augustus Berle Jr ( January 27, 1895 – February 17, 1971; his name pronounced "burley" was an educator author and Means pondered on the changing role of the modern corporation in society. Berle and Means' monograph "The Modern Corporation and Private Property" (1932, Macmillan) continues to have a profound influence on the conception of corporate governance in scholarly debates today.
From the Chicago school of economics, Ronald Coase's "Nature of the Firm" (1937) introduced the notion of transaction costs into the understanding of why firms are founded and how they continue to behave. Ronald Harry Coase (born December 29, 1910) is a British Economist and the Clifton R Fifty years later, Eugene Fama and Michael Jensen's "The Separation of Ownership and Control" (1983, Journal of Law and Economics) firmly established agency theory as a way of understanding corporate governance: the firm is seen as a series of contracts. Eugene F "Gene" Fama (born February 14, 1939) is an American economist known for his work on Portfolio theory and Asset pricing Michael Cole "Mike" Jensen (born November 30, 1939) is an American Economist working in the area of Financial economics. In political science and Economics, the principal-agent problem or agency dilemma treats the difficulties that arise under conditions of incomplete and asymmetric Agency theory's dominance was highlighted in a 1989 article by Kathleen Eisenhardt (Academy of Management Review).
US expansion after World War II through the emergence of multinational corporations saw the establishment of the managerial class. World War II, or the Second World War, (often abbreviated WWII) was a global military conflict which involved a majority of the world's nations, including Accordingly, the following Harvard Business School management professors published influential monographs studying their prominence: Myles Mace (entrepreneurship), Alfred D. Chandler, Jr. (business history), Jay Lorsch (organizational behavior) and Elizabeth MacIver (organizational behavior). Harvard Business School ( HBS) is a renowned Business school in the United States Management (covering theory practice and scope of management and Manager' (covering the people who manage might help clarify and systematise Alfred DuPont Chandler Jr ( September 15 1918 &ndash May 9 2007) was a professor of business history at Harvard Business School, According to Lorsch and MacIver "many large corporations have dominant control over business affairs without sufficient accountability or monitoring by their board of directors. "
Since the late 1970’s, corporate governance has been the subject of significant debate in the U. S. and around the globe. Bold, broad efforts to reform corporate governance have been driven, in part, by the needs and desires of shareowners to exercise their rights of corporate ownership and to increase the value of their shares and, therefore, wealth. Over the past three decades, corporate directors’ duties have expanded greatly beyond their traditional legal responsibility of duty of loyalty to the corporation and its shareowners. 
In the first half of the 1990s, the issue of corporate governance in the U. S. received considerable press attention due to the wave of CEO dismissals (e. g. : IBM, Kodak, Honeywell) by their boards. International Business Machines Corporation abbreviated IBM and nicknamed "Big Blue", is a multinational Computer Technology Eastman Kodak Company ( is an American multinational Public company which produces imaging and photographic materials and equipment Honeywell ( is a major American multinational conglomerate company that produces a variety of consumer products engineering services and aerospace systems CALPERS led a wave of institutional shareholder activism (something only very rarely seen before), as a way of ensuring that corporate value would not be destroyed by the now traditionally cozy relationships between the CEO and the board of directors (e. The California Public Employees' Retirement System (CalPERS provides Pension fund, healthcare and other retirement services for approximately 1 g. , by the unrestrained issuance of stock options, not infrequently back dated). Options backdating is the practice of granting an Employee stock option that is dated prior to the date that the company actually granted the option
In 1997, the East Asian Financial Crisis saw the economies of Thailand, Indonesia, South Korea, Malaysia and The Philippines severely affected by the exit of foreign capital after property assets collapsed. Year 1997 ( MCMXCVII) was a Common year starting on Wednesday (link will display full 1997 Gregorian calendar The Asian Financial Crisis was a period of Financial crisis that gripped much of Asia beginning in July 1997 and raised fears of a worldwide economic meltdown ( The Kingdom of Thailand (ˈtaɪlænd ราชอาณาจักรไทย, râːtɕʰa-ʔaːnaːtɕɑ̀k-tʰɑj The Republic of Indonesia ( (Republik Indonesia is a Country in Southeast Asia. South Korea, officially the Republic of Korea and often referred to as Korea ( Korean: 대한민국 tɛː For the biogeographical region see Malesia Malaysia (məˈleɪʒə or /məˈleɪziə/ is a country that consists of thirteen states and The Philippines ( Filipino: Pilipinas, officially known as the Republic of the Philippines (fil ''Republika ng Pilipinas'' RP The lack of corporate governance mechanisms in these countries highlighted the weaknesses of the institutions in their economies.
In the early 2000s, the massive bankruptcies (and criminal malfeasance) of Enron and Worldcom, as well as lesser corporate debacles, such as Adelphia Communications, AOL, Arthur Andersen, Global Crossing, Tyco, and, more recently, Fannie Mae and Freddie Mac, led to increased shareholder and governmental interest in corporate governance. Enron Creditors Recovery Corporation (formerly Enron Corporation, former NYSE ticker symbol ENE was an American Energy company based in Arthur Andersen LLP, based in Chicago, was once one of the "Big Five" accounting firms among PricewaterhouseCoopers, Deloitte Touche Global Crossing Limited is a Telecommunications company that provides Computer networking services worldwide Tyco International Ltd is a highly diversified global manufacturing company incorporated in Bermuda, with United States operational headquarters in Princeton New This culminated in the passage of the Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 ( also known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly called SOX or Sarbox  But, since then, the stock market has greatly recovered, and shareholder zeal has waned accordingly.
The positive effect of good corporate governance on different stakeholders ultimately is a strengthened economy, and hence good corporate governance is a tool for socio-economic development.  After East Asian economies collapsed in the late 20th century, the World Bank's president warned those countries, that for sustainable development, corporate governance has to be good. Economic health of a nation depends substantially on how sound and ethical businesses are.
Many years ago, worldwide, buyers and sellers of corporation stocks were individual investors, such as wealthy businessmen or families, who often had a vested, personal and emotional interest in the corporations whose shares they owned. Over time, markets have become largely institutionalized: buyers and sellers are largely institutions (e. g. , pension funds, insurance companies, mutual funds, hedge funds, investor groups, and banks). A pension fund is a pool of assets forming an independent legal entity that are bought with the contributions to a Pension plan for the exclusive purpose of financing pension Insurance, in Law and Economics, is a form of Risk management primarily used to hedge against the Risk of a contingent loss A mutual fund is a professionally managed type of collective investments that pools money from many investors and Invests it in Stocks bonds, A hedge fund is a private Investment fund open to a limited range of investors which is permitted by regulators to undertake a wider range of activities than other investment A banker or bank is a Financial institution whose primary activity is to act as a payment agent for customers and to borrow and lend money
The rise of the institutional investor has brought with it some increase of professional diligence which has tended to improve regulation of the stock market (but not necessarily in the interest of the small investor or even of the naïve institutions, of which there are many). A stock market, or (equity market is a private or public market for the trading of company Stock and derivatives of company Note that this process occurred simultaneously with the direct growth of individuals investing indirectly in the market (for example individuals have twice as much money in mutual funds as they do in bank accounts). However this growth occurred primarily by way of individuals turning over their funds to 'professionals' to manage, such as in mutual funds. In this way, the majority of investment now is described as "institutional investment" even though the vast majority of the funds are for the benefit of individual investors.
Program trading, the hallmark of institutional trading, is averaging over 60% a day in 2007. Program trading is casually defined as the use of Computers in Stock markets to engage in Arbitrage and portfolio insurance strategies
Unfortunately, there has been a concurrent lapse in the oversight of large corporations, which are now almost all owned by large institutions. The Board of Directors of large corporations used to be chosen by the principal shareholders, who usually had an emotional as well as monetary investment in the company (think Ford), and the Board diligently kept an eye on the company and its principal executives (they usually hired and fired the President, or Chief executive officer— CEO). President is a Title leaders of Organizations companies, Trade unions universities, and countries. A chief executive officer ( CEO) or chief executive is typically the highest-ranking corporate officer ( executive) or administrator
Nowadays, if the owning institutions don't like what the President/CEO is doing and they feel that firing them will likely be costly (think "golden handshake") and/or time consuming, they will simply sell out their interest. A golden handshake is a Clause in an executive employment contract that provides the executive with a significant severance package in the case that the executive The Board is now mostly chosen by the President/CEO, and may be made up primarily of their friends and associates, such as officers of the corporation or business colleagues. Since the (institutional) shareholders rarely object, the President/CEO generally takes the Chair of the Board position for his/herself (which makes it much more difficult for the institutional owners to "fire" him/her). Occasionally, but rarely, institutional investors support shareholder resolutions on such matters as executive pay and anti-takeover measures. See also Socially responsible investing Shareholder resolutions are proposals submitted by stockholders for a vote at the company's annual meeting
Finally, the largest pools of invested money (such as the mutual fund 'Vanguard 500', or the largest investment management firm for corporations, State Street Corp.) are designed simply to invest in a very large number of different companies with sufficient liquidity, based on the idea that this strategy will largely eliminate individual company financial or other risk and, therefore, these investors have even less interest in a particular company's governance. Market liquidity is a Business, Economics or Investment term that refers to an Asset 's ability to be easily converted through an act of buying Financial risk is normally any Risk associated with any form of financing.
Since the marked rise in the use of Internet transactions from the 1990s, both individual and professional stock investors around the world have emerged as a potential new kind of major (short term) force in the direct or indirect ownership of corporations and in the markets: the casual participant. The Internet is a global system of interconnected Computer networks The 1990s collectively refers to the years between and including 1990 and 1999 A stock trader or a stock investor is an Individual or firm who buys and sells Stocks or bonds (and possibly other Even as the purchase of individual shares in any one corporation by individual investors diminishes, the sale of derivatives (e. Derivatives are Financial instruments whose values depend on the value of other underlying financial instruments g. , exchange-traded funds (ETFs), Stock market index options , etc. An exchange-traded fund (or ETF) is an investment vehicle traded on Stock exchanges much like Stocks. A stock market index is a method of measuring a section of the Stock market. Options are financial instruments that convey the right but not the obligation to engage in a future transaction on some Underlying security, or in a Futures ) has soared. So, the interests of most investors are now increasingly rarely tied to the fortunes of individual corporations.
But, the ownership of stocks in markets around the world varies; for example, the majority of the shares in the Japanese market are held by financial companies and industrial corporations (there is a large and deliberate amount of cross-holding among Japanese keiretsu corporations and within S. A is a set of companies with interlocking Business relationships and shareholdings. Korean chaebol 'groups') , whereas stock in the USA or the UK and Europe are much more broadly owned, often still by large individual investors. Chaebol (alternatively Jaebol, Jaebeol) refers to a South Korean form of business conglomerate.
Parties involved in corporate governance include the regulatory body (e. g. the Chief Executive Officer, the board of directors, management and shareholders). A chief executive officer ( CEO) or chief executive is typically the highest-ranking corporate officer ( executive) or administrator Management (covering theory practice and scope of management and Manager' (covering the people who manage might help clarify and systematise A mutual shareholder or stockholder is an Individual or company (including a Corporation) that legally owns one or more shares of Other stakeholders who take part include suppliers, employees, creditors, customers and the community at large.
In corporations, the shareholder delegates decision rights to the manager to act in the principal's best interests. This separation of ownership from control implies a loss of effective control by shareholders over managerial decisions. Partly as a result of this separation between the two parties, a system of corporate governance controls is implemented to assist in aligning the incentives of managers with those of shareholders. With the significant increase in equity holdings of investors, there has been an opportunity for a reversal of the separation of ownership and control problems because ownership is not so diffuse.
A board of directors often plays a key role in corporate governance. It is their responsibility to endorse the organisation's strategy, develop directional policy, appoint, supervise and remunerate senior executives and to ensure accountability of the organisation to its owners and authorities.
The Company Secretary, known as a Corporate Secretary in the US and often referred to as a Chartered Secretary if qualified by the Institute of Chartered Secretaries and Administrators (ICSA), is a high ranking professional who is trained to uphold the highest standards of corporate governance, effective operations, compliance and administration. A Company Secretary is a senior position in a private Company or public organisation normally in the form of a managerial position or above The Institute of Chartered Secretaries and Administrators (ICSA is a British professional organization
All parties to corporate governance have an interest, whether direct or indirect, in the effective performance of the organisation. Directors, workers and management receive salaries, benefits and reputation, while shareholders receive capital return. Customers receive goods and services; suppliers receive compensation for their goods or services. In return these individuals provide value in the form of natural, human, social and other forms of capital.
A key factor in an individual's decision to participate in an organisation e. g. through providing financial capital and trust that they will receive a fair share of the organisational returns. If some parties are receiving more than their fair return then participants may choose to not continue participating leading to organizational collapse.
Key elements of good corporate governance principles include honesty, trust and integrity, openness, performance orientation, responsibility and accountability, mutual respect, and commitment to the organization.
Of importance is how directors and management develop a model of governance that aligns the values of the corporate participants and then evaluate this model periodically for its effectiveness. In particular, senior executives should conduct themselves honestly and ethically, especially concerning actual or apparent conflicts of interest, and disclosure in financial reports. A conflict of interest is a situation in which someone in a position of trust such as a Lawyer, Insurance adjuster, a Politician, executive or director
Commonly accepted principles of corporate governance include:
Issues involving corporate governance principles include:
" Corporate Governance" despite some feeble attempts from various quarters has remained ambiguous and often misunderstood pharse. Dividends are payments made by a Corporation to its Shareholder members For Quite some tine it was confined to only corporate management. It is not so. it is somthing much broader for it must include a fair, efficient and transparent administration to meet certain well f=defined objectives. Corporate governance also must go beyong law. The quantity, quality and frequency of financial and managerial disclosure, the degree and extent to which the board of Director (BOD) exercise thier trustee responsibilities and the commitment to run transparent organization- these should evolve due to interplay of many factors and the role played by more progressive elements within the corporate sector. In India, a strident demand for evolving a code of good practices by the corporate themselves is emerging.
Corporate governance mechanisms and controls are designed to reduce the inefficiencies that arise from moral hazard and adverse selection. Moral hazard is the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk Adverse selection, anti-selection, or negative selection is a term used in Economics, Insurance, Statistics, and Risk management For example, to monitor managers' behaviour, an independent third party (the auditor) attests the accuracy of information provided by management to investors. The most general definition of an audit is an evaluation of a person organization system process project or product An ideal control system should regulate both motivation and ability.
Internal corporate governance controls monitor activities and then take corrective action to accomplish organisational goals. Examples include:
External corporate governance controls encompass the controls external stakeholders exercise over the organisation. Examples include:
Financial reporting is a crucial element necessary for the corporate governance system to function effectively. Accountants and auditors are the primary providers of information to capital market participants. An accountant is a practitioner of Accountancy, which is the measurement disclosure or provision of assurance about financial information that helps managers investors The most general definition of an audit is an evaluation of a person organization system process project or product The directors of the company should be entitled to expect that management prepare the financial information in compliance with statutory and ethical obligations, and rely on auditors' competence.
Current accounting practice allows a degree of choice of method in determining the method of measurement, criteria for recognition, and even the definition of the accounting entity. The exercise of this choice to improve apparent performance (popularly known as creative accounting) imposes extra information costs on users. Creative accounting and earnings management are Euphemisms referring to Accounting practices that may ”follow the letter of the rules of Standard In the extreme, it can involve non-disclosure of information.
One area of concern is whether the accounting firm acts as both the independent auditor and management consultant to the firm they are auditing. This may result in a conflict of interest which places the integrity of financial reports in doubt due to client pressure to appease management. The power of the corporate client to initiate and terminate management consulting services and, more fundamentally, to select and dismiss accounting firms contradicts the concept of an independent auditor. Changes enacted in the United States in the form of the Sarbanes-Oxley Act (in response to the Enron situation as noted below) prohibit accounting firms from providing both auditing and management consulting services. Similar provisions are in place under clause 49 of SEBI Act in India. Securities and Exchange Board of India ( SEBI) is the Regulator for the Securities Market in India
The Enron collapse is an example of misleading financial reporting. Enron concealed huge losses by creating illusions that a third party was contractually obliged to pay the amount of any losses. However, the third party was an entity in which Enron had a substantial economic stake. In discussions of accounting practices with Arthur Andersen, the partner in charge of auditing, views inevitably led to the client prevailing. Arthur Andersen LLP, based in Chicago, was once one of the "Big Five" accounting firms among PricewaterhouseCoopers, Deloitte Touche
However, good financial reporting is not a sufficient condition for the effectiveness of corporate governance if users don't process it, or if the informed user is unable to exercise a monitoring role due to high costs (see Systemic problems of corporate governance above).
|Company · Business|
(General · Limited · LLP)
|S corporation · C corporation|
LLC · LLLP · Series LLC
(By shares · By guarantee)
(Public · Proprietary)
Community interest company
|SE · SCE|
|AB · AG · ANS · A/S · AS · GmbH|
|K.K. · N.V. · OY · S.A. · Full list|
|Limited liability · Ultra vires|
|Business judgment rule|
|Internal affairs doctrine|
|De facto corporation and|
corporation by estoppel
|Piercing the corporate veil|
|Related areas of law|
|Contract · Civil procedure|
Rules are typically thought to be simpler to follow than principles, demarcating a clear line between acceptable and unacceptable behaviour. Companies law (or the law of business associations) is the field of Law concerning business and other organizations Generally a company is a form of Business organization. The precise definition varies A business (also called firm or an enterprise) is a legally recognized organizational entity designed to provide goods and/or services to A sole proprietorship, or simply proprietorship ( Benjamen Clark For partnership in cricket terminology see List of cricket terms A partnership is a type of Business entity in which partners In the commercial and legal parlance of most countries a general partnership or simply a Partnership, refers to an association of persons or an unincorporated A limited partnership is a form of Partnership similar to a General partnership, except that in addition to one or more general partners (GPs there are A limited liability partnership (abbreviated as LLP) has elements of Partnerships and Corporations. A corporation is a separate legal entity usually used to conduct business An S corporation or S-corp, for United States federal income tax purposes is a Corporation that makes a valid election to be taxed under Subchapter S of A C corporation (or C corp) is a Corporation in the United States that for Federal income tax purposes, is Taxed under and Subchapter C ( et A limited liability company (abbreviated LLC or LLC) in the law of the vast majority of the United States is a legal form of business Company The limited liability limited partnership (LLLP is a relatively new modification of the limited partnership a form of Business entity recognized under U A Series LLC is a special form of a Limited liability company that provides liability protection across multiple "series" each of which is theoretically protected A Nevada Corporation is a Corporation chartered under the Laws of the U A Massachusetts business trust or MBT is a legal trust set up for the purposes of business but not necessarily in the state of Massachusetts. A limited company in the United Kingdom is a Corporation whose liability is limited by law A private company limited by shares is a type of company incorporated under the laws of England and Wales, Scotland, that of certain Commonwealth countries In British or Irish Company law, a company limited by guarantee is an alternative type of Corporation used primarily for Non-profit A Public Limited Company ( PLC, plc or plc or p l c is a type of Limited company in the United Kingdom or the Republic of Ireland which is A proprietary company is a form of Corporation in Australia that is limited by Shares. A community interest company (CIC is a new type of company introduced by the United Kingdom government in 2005 under The Community Interest Act 2004, designed The European Economic Area ( EEA) came into being on 1 January 1994 following an agreement between member states of European Free Trade Association (EFTAthe The Council Regulation on the Statute for a European Company of the European Union was adopted October 8 2001. TemplateExpert and TemplateExpert-subject, has been modified to include two WikiProjects and Portals (Expert-subject is limited to Aktiebolag (literally " share Company " or " Stock Company " is the Swedish term for " Limited Aktiengesellschaft ('aktsiəngəzεlʃaft abbreviated AG) is a German term that refers to a Corporation that is limited by shares i An ansvarlig selskap is a Norwegian personal responsibility Company model mainly used in small-to-medium businesses which translates directly into "Responsible An Aktieselskab (abbreviated A/S) is the Danish name for a Stock -based Corporation. Aksjeselskap is the Norwegian term for a Stock -based Company. Gesellschaft mit beschränkter Haftung ( GmbH) is a type of legal entity very common in Germany (where it was created in 1892 Austria nl '''''Naamloze Vennootschap''''' (usually abbreviated NV) is the Dutch term for a Public Limited liability Corporation. Osakeyhtiö, literally a " stock company " is the Finnish equivalent of a Limited company ( Ltd or LLC) or Gesellschaft For the art organization see Société Anonyme (art SA generally designates Corporations in various countries mostly those employing There are many types of business entity defined in the legal systems of various countries Limited liability is a concept whereby a person's financial Liability is limited to a fixed sum most commonly the value of a person's investment in a company or partnership Ultra vires is a Latin phrase that literally means "beyond the powers" The business judgment rule is an American Case law -derived concept in Corporations law whereby the "directors of a corporation. The internal affairs doctrine is a Choice of law rule in Corporations law. De facto corporation and corporation by estoppel are both terms that are used by Courts to describe circumstances in which a business organization that has The corporate law concept of piercing (lifting the corporate veil describes a legal decision where a shareholder or director of a Corporation is held liable for the The Rochdale Principles are a set of ideals for the operation of Cooperatives. A contract is an exchange of promises between two or more parties to do or refrain from doing an act which is enforceable in a court of law Civil procedure is the body of law that sets out the process that Courts will follow when hearing cases of a civil nature (a " Civil action " as opposed to Rules also reduce discretion on the part of individual managers or auditors.
In practice rules can be more complex than principles. They may be ill-equipped to deal with new types of transactions not covered by the code. Moreover, even if clear rules are followed, one can still find a way to circumvent their underlying purpose - this is harder to achieve if one is bound by a broader principle.
Principles on the other hand is a form of self regulation. It allows the sector to determine what standards are acceptable or unacceptable. It also pre-empts over zealous legislations that might not be practical.
Enforcement can affect the overall credibility of a regulatory system. They both deter bad actors and level the competitive playing field. Nevertheless, greater enforcement is not always better, for taken too far it can dampen valuable risk-taking. In practice, however, this is largely a theoretical, as opposed to a real, risk.
Enlightened boards regard their mission as helping management lead the company. They are more likely to be supportive of the senior management team. Because enlightened directors strongly believe that it is their duty to involve themselves in an intellectual analysis of how the company should move forward into the future, most of the time, the enlightened board is aligned on the critically important issues facing the company.
Unlike traditional boards, enlightened boards do not feel hampered by the rules and regulations of the Sarbanes-Oxley Act. Unlike standard boards that aim to comply with regulations, enlightened boards regard compliance with regulations as merely a baseline for board performance. Enlightened directors go far beyond merely meeting the requirements on a checklist. They do not need Sarbanes-Oxley to mandate that they protect values and ethics or monitor CEO performance.
At the same time, enlightened directors recognize that it is not their role to be involved in the day-to-day operations of the corporation. They lead by example. Overall, what most distinguishes enlightened directors from traditional and standard directors is the passionate obligation they feel to engage in the day-to-day challenges and strategizing of the company. Enlightened boards can be found in very large, complex companies, as well as smaller companies. 
Although the US model of corporate governance is the most notorious, there is a considerable variation in corporate governance models around the world. The intricated shareholding structures of keiretsus in Japan, the heavy presence of banks in the equity of German firms, the chaebols in South Korea and many others are examples of arrangements which try to respond to the same corporate governance challenges as in the US. A is a set of companies with interlocking Business relationships and shareholdings. Chaebol (alternatively Jaebol, Jaebeol) refers to a South Korean form of business conglomerate.
There are many different models of corporate governance around the world. These differ according to the variety of capitalism in which they are embedded. The liberal model that is common in Anglo-American countries tends to give priority to the interests of shareholders. The coordinated model that one finds in Continental Europe and Japan also recognizes the interests of workers, managers, suppliers, customers, and the community. Both models have distinct competitive advantages, but in different ways. The liberal model of corporate governance encourages radical innovation and cost competition, whereas the coordinated model of corporate governance facilitates incremental innovation and quality competition. However, there are important differences between the U. S. recent approach to governance issues and what has happened in the U. K. .
In the United States, a corporation is governed by a board of directors, which has the power to choose an executive officer, usually known as the chief executive officer. A chief executive officer ( CEO) or chief executive is typically the highest-ranking corporate officer ( executive) or administrator The CEO has broad power to manage the corporation on a daily basis, but needs to get board approval for certain major actions, such as hiring his/her immediate subordinates, raising money, acquiring another company, major capital expansions, or other expensive projects. Other duties of the board may include policy setting, decision making, monitoring management's performance, or corporate control.
The board of directors is nominally selected by and responsible to the shareholders, but the bylaws of many companies make it difficult for all but the largest shareholders to have any influence over the makeup of the board; normally, individual shareholders are not offered a choice of board nominees among which to choose, but are merely asked to rubberstamp the nominees of the sitting board. A mutual shareholder or stockholder is an Individual or company (including a Corporation) that legally owns one or more shares of A bylaw (sometimes also spelled by-law or byelaw) most commonly refers to a city or municipal law or ordinance passed under the authority of a Charter Perverse incentives have pervaded many corporate boards in the developed world, with board members beholden to the chief executive whose actions they are intended to oversee. Frequently, members of the boards of directors are CEOs of other corporations, which some see as a conflict of interest.
The U. K. has pioneered a flexible model of regulation of corporate governance, known as the "comply or explain" code of governance. This is a principle based code that lists a dozen of recommended practices, such as the separation of CEO and Chairman of the Board, the introduction of a time limit for CEOs' contracts, the introduction of a minimum number of non-executives Directors, of independent directors, the designation of a senior non executive director, the formation and composition of remuneration, audit and nomination committees. Publicly listed companies in the U. K. have to either apply those principles or, if they choose not to, to explain in a designated part of their annual reports why they decided not to do so. The monitoring of those explanations is left to shareholders themselves. The tenet of the Code is that one size does not fit all in matters of corporate governance and that instead of a statuary regime like the Sarbanes-Oxley Act in the U. S. , it is best to leave some flexibility to companies so that they can make choices most adapted to their circumstances. If they have good reasons to deviate from the sound rule, they should be able to convincingly explain those to their shareholders.
The code has been in place since 1993 and has had drastic effects on the way firms are governed in the U. K. A study by Arcot, Bruno and Faure-Grimaud from the Financial Markets Group at the London School of Economics shows that in 1993, about 10% of the UK companies member of the FTSE 350 were compliants on all dimensions while they were more than 60% in 2003. The same success was not achieved when looking at the explanation part for non compliant companies. Many deviations are simply not explained and a large majority of explanations fail to identify specific circumstances justifying those deviations. Still, the overall view is that the U. K. 's system works fairly well and in fact is often branded as a benchmark, followed by several countries.
In East Asian countries, family-owned companies dominate. A study by Claessens, Djankov and Lang (2000) investigated the top 15 families in East Asian countries and found that they dominated listed corporate assets. In countries such as Pakistan, Indonesia and the Philippines, the top 15 families controlled over 50% of publicly owned corporations through a system of family cross-holdings, thus dominating the capital markets. Family-owned companies also dominate the Latin model of corporate governance, that is companies in Mexico, Italy, Spain, France (to a certain extent), Brazil, Argentina, and other countries in South America.
Europe and Asia exemplify the insider system: Shareholder and stakeholder
• a small number of listed companies,
• an illiquid capital market where ownership and control are not frequently traded
• high concentration of shareholding in the hands of corporations, institutions, families or government
. • the insider model uses a system of interlocking networks and committees.
At the same time that developing countries are undergoing a process of economic growth and transformation, they are also experiencing a revolution in the business and political relationships that characterize their private and public sectors. Establishing good corporate governance practices is essential to sustaining long-term development and growth as these countries move from closed, market-unfriendly, undemocratic systems towards open, market-friendly, democratic systems. Good corporate governance systems will allow organizations to realize their maximum productivity and efficiency, minimize corruption and abuse of power, and provide a system of managerial accountability.  These goals are equally important for both private corporations and government bodies.
Because of the implicit relationship between private interests and the larger government, good corporate governance practices are essential to establishing good governance at the national level in developing countries.  A number of ties the keep the public and private sectors closely linked. On one hand, judiciary and regulatory bodies as well as legislatures play a role in corporate management and oversight. At the same time cartels and large corporate interests use their size to exert not only economic, but also political power. These two sectors are so intertwined that a country cannot significantly change one without simultaneously instituting changes in the other. 
According to Nicolas Meisel, there are four priorities which developing countries should concentrate on while experimenting with new forms of corporate and public governance. The first is to focus on improving the quality of information and increasing the speed at which it is created and distributed to the public. Good communication is important to the functioning of any organization. The second is to allow individual actors more autonomy while at the same time maintaining or increasing accountability. Thirdly, if a hierarchical organization used to orient private activities toward the general interest, new countervailing powers should be encouraged to fill this role. Finally, the part the state plays and how government officials are selected must be considered if a developing economy is to achieve sustainable growth. This may involve making it easier for newcomers with new ideas incumbents who may hold to older, possibly outdated, models. 
Corporate governance principles and codes have been developed in different countries and issued from stock exchanges, corporations, institutional investors, or associations (institutes) of directors and managers with the support of governments and international organizations. As a rule, compliance with these governance recommendations is not mandated by law, although the codes linked to stock exchange listing requirements may have a coercive effect. A stock exchange, share market or bourse is a Corporation or Mutual organization which provides "trading" facilities for Stock
For example, companies quoted on the London and Toronto Stock Exchanges formally need not follow the recommendations of their respective national codes. However, they must disclose whether they follow the recommendations in those documents and, where not, they should provide explanations concerning divergent practices. Such disclosure requirements exert a significant pressure on listed companies for compliance.
In the United States, companies are primarily regulated by the state in which they incorporate though they are also regulated by the federal government and, if they are public, by their stock exchange. The highest number of companies are incorporated in Delaware, including more than half of the Fortune 500. This is due to Delaware's generally business-friendly corporate legal environment and the existence of a state court dedicated solely to business issues (Delaware Court of Chancery).
Most states' corporate law generally follow the American Bar Association's Model Business Corporation Act. While Delaware does not follow the Act, it still considers its provisions and several prominent Delaware justices, including former Delaware Supreme Court Chief Justice E. Norman Veasey, participate on ABA committees.
One issue that has been raised since the Disney decision in 2005 is the degree to which companies manage their governance responsibilities; in other words, do they merely try to supersede the legal threshold, or should they create governance guidelines that ascend to the level of best practice. For example, the guidelines issued by associations of directors (see Section 3 above), corporate managers and individual companies tend to be wholly voluntary. For example, The GM Board Guidelines reflect the company’s efforts to improve its own governance capacity. Such documents, however, may have a wider multiplying effect prompting other companies to adopt similar documents and standards of best practice.
One of the most influential guidelines has been the 1999 OECD Principles of Corporate Governance. This was revised in 2004. The OECD remains a proponent of corporate governance principles throughout the world.
Building on the work of the OECD, other international organisations, private sector associations and more than 20 national corporate governance codes, the United Nations Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) has produced voluntary Guidance on Good Practices in Corporate Governance Disclosure. This internationally agreed benchmark consists of more than fifty distinct disclosure items across five broad categories:
The World Business Council for Sustainable Development WBCSD has done work on corporate governance, particularly on accountability and reporting, and in 2004 created an Issue Management Tool: Strategic challenges for business in the use of corporate responsibility codes, standards, and frameworks. The United Nations ( UN) is an International organization whose stated aims are to facilitate cooperation in International law, International security The ISAR working group is hosted by the United Nations Conference on Trade and Development ( UNCTAD) The World Business Council for Sustainable Development (WBCSD is a CEO-led global association of some 200 international companies dealing exclusively with business and Sustainable This document aims to provide general information, a "snap-shot" of the landscape and a perspective from a think-tank/professional association on a few key codes, standards and frameworks relevant to the sustainability agenda.
In its 'Global Investor Opinion Survey' of over 200 institutional investors first undertaken in 2000 and updated in 2002, McKinsey found that 80% of the respondents would pay a premium for well-governed companies. 2000 ( MM) was a Leap year that started on Saturday of the Common Era, in accordance with the Gregorian calendar. See also 2002 (disambiguation Year 2002 ( MMII) was a Common year starting on Tuesday of the Gregorian calendar. McKinsey & Company is a global Management consulting firm that focuses on solving issues of concern to senior management They defined a well-governed company as one that had mostly out-side directors, who had no management ties, undertook formal evaluation of its directors, and was responsive to investors' requests for information on governance issues. The size of the premium varied by market, from 11% for Canadian companies to around 40% for companies where the regulatory backdrop was least certain (those in Morocco, Egypt and Russia). Morocco (المغرب "al-Maghrib" officially the Kingdom of Morocco (المملكة المغربية is a country located in North Africa This article is about the country of Egypt For a topic outline on this subject see List of basic Egypt topics. Russia (Россия Rossiya) or the Russian Federation ( Rossiyskaya Federatsiya) is a transcontinental Country extending
Other studies have linked broad perceptions of the quality of companies to superior share price performance. In a study of five year cumulative returns of Fortune Magazine's survey of 'most admired firms', Antunovich et al found that those "most admired" had an average return of 125%, whilst the 'least admired' firms returned 80%. Fortune is a Global Business Magazine published by Time Inc's Fortune|Money Group In a separate study Business Week enlisted institutional investors and 'experts' to assist in differentiating between boards with good and bad governance and found that companies with the highest rankings had the highest financial returns. BusinessWeek is a business Magazine published by McGraw-Hill.
On the other hand, research into the relationship between specific corporate governance controls and firm performance has been mixed and often weak. The following examples are illustrative.
Some researchers have found support for the relationship between frequency of meetings and profitability. Others have found a negative relationship between the proportion of external directors and firm performance, while others found no relationship between external board membership and performance. In a recent paper Bagahat and Black found that companies with more independent boards do not perform better than other companies. It is unlikely that board composition has a direct impact on firm performance.
The results of previous research on the relationship between firm performance and executive compensation have failed to find consistent and significant relationships between executives' remuneration and firm performance. Low average levels of pay-performance alignment do not necessarily imply that this form of governance control is inefficient. Not all firms experience the same levels of agency conflict, and external and internal monitoring devices may be more effective for some than for others.
Some researchers have found that the largest CEO performance incentives came from ownership of the firm's shares, while other researchers found that the relationship between share ownership and firm performance was dependent on the level of ownership. The results suggest that increases in ownership above 20% cause management to become more entrenched, and less interested in the welfare of their shareholders.
Some argue that firm performance is positively associated with share option plans and that these plans direct managers' energies and extend their decision horizons toward the long-term, rather than the short-term, performance of the company. Options are financial instruments that convey the right but not the obligation to engage in a future transaction on some Underlying security, or in a Futures However, that point of view came under substantial criticism circa in the wake of various security scandals including mutual fund timing episodes and, in particular, the backdating of option grants as documented by University of Iowa academic Erik Lie and reported by James Blander and Charles Forelle of the Wall Street Journal.
Even before the negative influence on public opinion caused by the 2006 backdating scandal, use of options faced various criticisms. A particularly forceful and long running argument concerned the interaction of executive options with corporate stock repurchase programs. Numerous authorities (including U. S. Federal Reserve Board economist Weisbenner) determined options may be employed in concert with stock buybacks in a manner contrary to shareholder interests. These authors argued that, in part, corporate stock buybacks for U. S. Standard & Poors 500 companies surged to a $500 billion annual rate in late 2006 because of the impact of options. A compendium of academic works on the option/buyback issue is included in the study Scandalby author M. Gumport issued in 2006.
A combination of accounting changes and governance issues led options to become a less popular means of remuneration as 2006 progressed, and various alternative implementations of buybacks surfaced to challenge the dominance of "open market" cash buybacks as the preferred means of implementing a share repurchase plan.