Corporate Finance I

Reading 31. Introduction to Corporate Governance and Other ESG Considerations

Learning Outcome Statements

a. describe corporate governance;

CFA Curriculum, 2020, Volume 4

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Subject 1. Corporate Governance Overview

Corporate governance is "the system by which companies are directed and controlled."

According to the textbook, corporate governance is "the system of internal controls and procedures by which individual companies are managed. It provides a framework that defines the rights, roles and responsibilities of various groups ... within an organization. At its core, corporate governance is the arrangement of checks, balances, and incentives a company needs in order to minimize and manage the conflicting interests between insiders and external shareowners."

Corporate governance is about promoting corporate fairness, transparency, and accountability. Its purpose is to prevent one group from expropriating the cash flows and assets of one or more other groups.

There are many systems of corporate governance, most reflecting the influences of either shareholder theory or stakeholder theory, or both. Current trends point to increasing convergence.

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User Contributed Comments 2

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nicos1969

- system which companies are controlled
- system of internal controls and procedures companies are managed
- framework of rights, roles and responsibilities
- check and balances and incentives amongst stakeholders

albacrow

helpful summary nicos1969 - thanks