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Corporate Governance Definition

Provided by IFC Corporate Governance

“Corporate governance refers to the structures and processes for the direction and control of companies. Corporate governance concerns the relationships among the management, board of directors, controlling shareholders, minority shareholders and other stakeholders. Good corporate governance contributes to sustainable economic development by enhancing the performance of companies and increasing their access to outside capital”.[1]

This definition focuses on three key elements:

- Direction refers to all the decisions that relate to setting the overall strategic direction of the company such as: (i) long-term strategic decisions; (ii) large-scale investment decisions; (iii) mergers and acquisitions; and (iv) succession planning and appointment of key senior managers, such as the CEO of the company.

- Control refers to all the actions necessary to oversee the management’s performance and follow up on the implementation of the strategic decisions set above.

- Relationship among the main governing bodies of the firm refers to the interactions among the shareholders, the directors of the board, and the managers. An important element of any good corporate governance structure is the clear definition of the role, duties, rights, and expectations of each of these governing bodies.

[1] International Finance Corporation, http://ifcln1.ifc.org/ifcext/corporategovernance.nsf/Content/WhyCG.

Copyright © 2016 IFC Corporate Governance.  All Rights Reserved. 

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