Frequently Asked Questions

How does corporate governance discourage mismanagement and fraud committed by corporations?

Corporate governance plays a crucial role in discouraging mismanagement and fraud committed by corporations. It provides a framework that ensures corporations operate within the confines of integrity, responsibility, fairness, accountability, and transparency. These principles are not just ideals, but are enforced through state laws and regulations. Corporations that fail to abide by these principles may face litigation, court prosecution, or sanctions from state officials. The primary aim of corporate governance is to balance social goals and economic well-being. It fosters efficient consumption of resources and calls for accountability and ethical distribution of these resources. This balance ensures that corporations operate in a manner that benefits not just the owners, but also society at large. Corporate governance also provides a structure for determining and achieving company goals, and for monitoring performance. It establishes boundaries within which companies can set their goals. Laws governing corporations are designed to protect the public and society. For instance, laws discouraging the dumping of toxic waste into bodies of water protect the public trust and the environment. The World Bank defines corporate governance as a mix of regulations and laws that require voluntary practices from the private sector. This allows corporations to attract employees and raise capital from investors, and to operate efficiently under governance guidelines. It also requires corporations to respect the rights of society and shareholders.