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Subject 1. Introduction
The separation of ownership (shareholders) and control (managers) may result in different conflicts of interest between managers and shareholders. Corporate governance is the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the company objectives are set, and the means of attaining those objectives and monitoring performance.
The importance of corporate governance:
- It helps investors better understand the risk inherent in an investment in a company.
- It helps to build investors' confidence essential to the efficient functioning of financial markets worldwide.
Study notes from a previous year's CFA exam:
a. describe objectives and core attributes of an effective corporate governance system and evaluate whether a company's corporate governance has those attributes;