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{"Image DocumentName": "Corporate Governance Key Terms Corporate governance", "Image ImageDescription": "Set of mechanisms used to manage the relationships among stakeholders and to determine and control the strategic direction and performance of organizations. Corporate Governance \u2013 an increasingly important part of the strategic management process. Discussion points: At its core, corporate governance is concerned with ensuring that strategic decisions are made effectively. Governance is a means corporations use to establish effective relationships between parties (such as the firm\u2019s owners and its top-level managers) whose interests may be in conflict. Corporate governance reflects and enforces the company\u2019s values. A primary objective of corporate governance is to ensure that the interests of top-level managers are aligned with the interests of the shareholders. Traditionally, shareholders are treated as the firm\u2019s key stakeholders because they are the company\u2019s legal owners. In a range of countries, but especially in the U.S. and the U.K., the fundamental goal of business organizations is to maximize shareholder value. The firm\u2019s owners expect top-level managers and others influencing the corporation\u2019s actions (for example, the board of directors) to make decisions that will result in the maximization of the company\u2019s value and, hence, of the owners\u2019 wealth. In many corporations, shareholders hold top-level managers accountable for their decisions and the results they generate. Corporate governance involves oversight in areas in which owners, managers, and members of boards of directors may have conflicts of interest. The primary goal is to ensure that the firm performs well and creates value for the shareholders. Corporate governance has received a great deal of attention in recent years. Corporate governance mechanisms occasionally fail to adequately monitor and control top-level managers\u2019 decisions. Examples: Enron and the recent financial crisis. Evidence suggests that a well-functioning corporate governance and control system can create a competitive advantage for a firm. This attention has resulted in changes in governance mechanisms in corporations throughout the world, especially with respect to efforts intended to improve the performance of boards of directors. These changes have generated some confusion about the proper role of the board \u2013 some boards are only seeking to comply with regulations, whereas others are making fundamental changes in the way they govern. It has been suggested that the board of directors is rapidly evolving into a major strategic force in U.S. business firms. Effective governance of corporations is also of interest to nations, which stand to gain a competitive advantage over rival countries. This chapter describes actions designed to implement strategies that focus on monitoring and controlling mechanisms, which can help to ensure that top-level managerial actions contribute to the firm\u2019s ability to create value and earn above-average returns. Corporate governance reflects company standards, which in turn collectively reflect societal standards. In what areas do owners, managers, and members of boards of directors have potential conflicts of interest? In the election of directors. In the general supervision of CEO pay. In the more focused supervision of director pay. In the design of the corporation\u2019s overall structure. In the establishment of the firm\u2019s overall strategic direction. Why is effective corporate governance of interest to nations? Every country wants the firms that operate within its borders to flourish and grow in such ways as to provide employment, wealth, and satisfaction, not only to improve standards of living materially but also to enhance social cohesion. These aspirations cannot be met unless those firms are competitive internationally in a sustained way, and it is this medium- and long-term perspective that makes good corporate governance so vital.", "Image XResolution": "37", "Image YResolution": "37", "Image ResolutionUnit": "Pixels/Centimeter", "Image Software": "SlidePlayer", "Image YCbCrPositioning": "Centered"}