What is Corporate Governance

“Corporate governance is traditionally defined as the ways in which a firm safeguards the
interests of its financiers (investors, lenders and creditors). The modern
definition calls it the framework of rules and practices by which a board of
directors ensures accountability, fairness, and transparency in the firm’s
relationship with its all stakeholders (financiers, customers, management,
employees, government and the community). This framework consists of (i) Explicit
and implicit contracts between the firm and the stakeholders for distribution
of responsibilities, rights and rewards, (ii) Procedures for reconciling the
sometimes conflicting interests of stakeholders in accordance with their
duties, privileges and roles and (iii) Procedures for proper supervision,
control and information-flows to serve as a system of checks and balances.”

In the words of Narayan Murthy, Chief Mentor, Infosys, “Corporate governance is maximizing the
shareholder value in a corporation while ensuring fairness to all stakeholders,
customers, employees, investors, vendors, the government and the
society-at-large. Corporate governance is about transparency and raising the
trust and confidence of stakeholders in the way the company is run. It is about
owners and the managers operating as the trustees on behalf of every
shareholder- large and small.”