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Corporate governance has also been defined as “a system of law and sound approaches by which corporations are directed and controlled focusing on the internal and external corporate structures with the intention of monitoring the actions of management and directors and thereby mitigating agency risks which may stem from the misdeeds of corporate officers.”

In contemporary business corporations, the main external stakeholder groups are shareholders, debt holders, trade creditors, suppliers, customers, and communities affected by the corporation’s activities. Internal stakeholders are the board of directors, executives, and other employees.

Much of the contemporary interest in corporate governance is concerned with mitigation of the conflicts of interests between stakeholders. Ways of mitigating or preventing these conflicts of interests include the processes, customs, policies, laws, and institutions which have an impact on the way a company is controlled. An important theme of governance is the nature and extent of corporate accountability.

The corporate governance framework consists of the following:

  • explicit and implicit contracts between the company and the stakeholders for the distribution of responsibilities, rights, and rewards.
  • procedures for reconciling the sometimes conflicting interests of stakeholders in accordance with their duties, privileges, and roles.
  • procedures for proper supervision, control, and information-flows to serve as a system of checks-and-balances. Also called corporate governance.

Corporate governance has also been more narrowly defined as “a system of law and sound approaches by which corporations are directed and controlled focusing on the internal and external corporate structures with the intention of monitoring the actions of management and directors and thereby, mitigating agency risks which may stem from the misdeeds of corporate officers.”

One source defines corporate governance as “the set of conditions that shapes the ex-post bargaining over the quasi-rents generated by a firm.” The firm itself is modeled as a governance structure acting through the mechanisms of contract. Here corporate governance may include its relation to corporate finance

 

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