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Why Study Corporate Governance?
“Relations between ownership and management is the basis of the modern corporation. It leads to efficient specialization of tasks, risk-bearing by shareholders, and strategy development and decision-making by managers.”
Majdi Hassen
OverviewThe OECD definition of corporate governance describes it as the system by which businesses are directed and controlled through the distribution of rights and responsibilities among different participants in the corporation (the board, managers, shareholders, and other stakeholders), and through rules and procedures for making decisions on corporate affairs. Already Adam Smith noted that managing other people’s money creates risks and conflicts arising from the separation of ownership and control. Corporate governance is designed to mitigate those risks and improve transparent and efficient performance of businesses. Yet businesses do not operate in a vacuum. That is why it is important that corporate governance also reflects the institutional environment external to firms. Additional Resources
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