Corporate governance: Methods for influencing management's decisions
Corporate governance refers to policies and rules, regulations, and laws, and activities that (1) influence both management's decisions and its company's operations, and (2) affect the relationships between a business's stakeholders. These stakeholders include the company's executives and managers, shareholders, creditors, current and former employees, competitors, and local and global communities.
In simple terms, corporate governance provisions can take two forms: incentives and penalties, with the former generally taking the form of rewards designed to benefit management for benefiting the firm's stakeholders, and the latter resulting in consequences for making damaging decisions or undertaking unacceptable activities.
These governing forces are both internal and external to the organization, and they can either align management's interests with those of their shareholders (a positive outcome) or further entrench the firm's management (a not-so-positive outcome). An entrenched management is one that is less likely to be removed, all other things remaining equal.