Corporate Governance: Introduction

Corporate governance has been described as "the system by which companies are directed and controlled." Under traditional corporate theory, control of a corporation is vested in the board of directors elected by the shareholders. In turn, these directors choose the officers to run the business.  Although various constituencies or stakeholders, such as creditors or employees, are affected by how corporations are governed, the primary relationship which has shaped corporate law is between the managers, who are the officers and inside directors...and the owners, who are the shareholders. The possible mismanagement or self-dealing by those in control of the corporation is the primary focus of corporate governance. Issues of corporate governance in publicly traded corporations look to how to minimize this bad behavior. Those issues have often revolved around the shareholders' right to a voice in corporate matters and the monitoring of the managers versus managers' power to operate the business without shareholder interference. A balance must be struck between the need of shareholders to monitor the management's power and the need of the managers to take risks and operate the business effectively. 

- Arthur R. Pinto & Douglas M. Branson, Understanding Corporate Law (5th ed. 2018).