Corporate Governance Framework

Abstract

Corporate governance can be defined as the material obligations of a company toward shareholders, employees, customers, suppliers, creditors, tax, and other supervisory authorities.1 From the above definition, we can infer that corporate governance is a set of relationships framed by corporate by-laws, articles of association, charters, and applicable statutory or other legal rules and principles, between the board of directors, shareholders, and other stakeholders of an organization that outlines the relationship among these groups, sets rules as to how the organization should be managed, as well as its operational framework.2 Concerns for corporate governance emerged in the 1980s, when US pension funds decided to invest the bulk of their stockholdings in index funds. A series of financial scandals starting in the 1980s have raised questions about US and other developed economies’ corporate governance ethics. After the Chrysler rescue in 1980; the Black Monday stock market crash in 1987; the Long-Term Capital Management (LTCM) stock market failure in 1998; the Enron, Tyco, Swissair, Vivendi, Kmart, Parmalat, Siemens, Ahold, and WorldCom fiascos; the US sub-prime market and its string of failures (i.e. Bear Stearns, Lehman Brothers, Merrill Lynch), corporate governance has become the predominant debate in academic, business, and even political circles.