CORPORATE

GOVERNANCE
 Corporate governance refers to the way in
which companies are governed and to what
purpose. It is concerned with practices and
procedures for trying to ensure that a company
is run in such a way that it achieves its
objectives.
  Corporate Governance is most often viewed
as both the structure and the relationships
which determine corporate direction and
performance. The board of directors is
typically central to corporate governance.
 3 Types of
Corporate
Governance
 1. OWNERSHIP
CONCENTRATION
II. BOARD OF
DIRECTORS
III. EXECUTIVE
COMPENSATION
 Executive compensation is a
governance mechanism that seeks
to align the interests of managers
and owners through salaries,
bonuses and long term incentive
compensation, such as stock
options.
III. MARKET FOR
CORPORATE
CONTROL
 Market for corporate control, sometimes called external
corporate control, usually comes into play when a
firm’s internal governance (board of directors) fails. It
often refers to a takeover market where
underperforming or undervalued firms become
attractive takeover targets by potential acquirers. When
firms perform poorly it often reflects poor internal
governance and therefore external governance control
will kick in.
 Potential acquirers might buy up a large amount of a
target firm’s equity in order to take control of the board
and subsequently replace the top management team
because poor performance often reflects poor
management. The aim of a takeover is to revitalise a
poorly run company and achieve higher profitability after
restructuring. Potential acquirers believe that they can
manage the target firm more effectively than the current
set of the top management team. The threat of takeover
can serve as a last governance mechanism by aligning the
interests and goals between executives and shareholders
and thus put additional pressure on managers to perform
more efficiently.