Corporate governance refers broadly to how companies are directed and controlled. It refers to the rules, processes, or laws by which businesses are operated, and regulated. It also influences how the objectives of the company are set and achieved, how risk is monitored and assessed, and how performance is maximized. The term can refer to internal factors defined by the officers or stockholders of a corporation, as well as to external forces such as consumer groups, clients, and government regulations. It is the relationship among various participants such as the chief executive officer, management, shareholders and employees in determining the direction and performance of corporations.
Good corporate governance is an essential ingredient in corporate success and sustainable economic growth. A well-defined and enforced corporate governance provides a structure that, at least in theory, works for the benefit of everyone concerned by ensuring that the enterprise adheres to accepted ethical standards and best practices, as well as to formal laws.
Another contribution of corporate governance is its influence on how a company sets and achieves its objectives. It also determines how risk is monitored and assessed, and how performance is optimized. Good corporate governance structures encourage companies to create value (through enterpreneurism, innovation, development and exploration). They provide accountability and control systems that are commensurate with the risks involved.
In recent years, corporate governance has received increased attention because of high-profile scandals involving abuse of corporate power and, in some cases, alleged criminal activity by corporate officers. An integral part of an effective corporate governance regime includes provisions for civil or criminal prosecution of individuals who conduct unethical or illegal acts in the name of the company.
Simply put, corporate governance is what you do with something after acquiring it.