Generally, the term corporate governance applies to a company’s policies and procedures determining who has the authority to make which decisions on the company’s behalf and who is accountable to whom within the organization. More specifically, we usually use the term to refer to the way that authority within corporations is structured at the highest levels. This includes questions like who selects the board of directors, what the board’s responsibilities and powers are, what sub-committees it should have, and so on.
With regard to business ethics, corporate governance is important for a number of reasons. First, a corporation’s governance structure explains who is ultimately responsible for a corporation’s behaviour. Second, its system of governance may indicate what is the purpose of the corporation and what counts as good management in pursuit of that purpose. The shareholder–stakeholder debate in business ethics is sometimes referred to as the “corporate governance debate” because it concerns how and in whose interests companies should be managed. Third, failures of corporate governance are frequently a source or exacerbator of corporate scandals.
See also in CEBE:
- Henry Hansmann, The Ownership of Enterprise, 2000