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What Is Corporate Governance?

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What is corporate governance?

Corporate governance is not a legal term. It does not have a specific definition even. Corporate governance is given as a term that refers widely to the rules, processes, or laws by which businesses are managed, guided, and limited. The term can result from internal influences described by the officers, stockholders or constitution of a corporation, as well as from external effects such as consumer groups, clients, and government regulations (Corporate governance, 2008-2011). Corporate governance impacts on how the purposes of a company are set and fulfilled, how risk is overseen and estimated, and how to perform, as stated by the ASX Corporate Governance Council'sCorporate Governance Principles and Recommendations (August 2007) (Lipton, Herzberg, & Welsh, 2010).

What is good corporate governance?

Furthermore, good corporate governance is more important to be achieved for every organization. However, it is very difficult to define exactly what it means. "It is often a case of 'we will know it when we see it' or, in the case of the regulators, courts and investors, 'we know what it is not when we see it" (What is good corporate governance, n.d.). As a formal description, the ASX Corporate Governance Council's Principles of Good Corporate Governance and Best Practice Recommendations, November 2006 states: " Good corporate governance structures encourage companies to create value (through entrepreneurism, innovation, development and exploration) and provide accountability and control systems commensurate with the risks involved." The Council's Recommendation (2003) also gives 8 principles for testing good corporate governance as followed:

 Principle 1: Lay solid foundations for management and oversight

 Principle 2: Structure the board to add value

 Principle 3: Promote ethical and responsible decision-making

 Principle 4: Safeguard integrity in financial reporting

 Principle 5: Make timely and balanced disclosure

 Principle 6: Respect the rights of shareholders

 Principle 7: Recognize and manage risk

 Principle 8: Remunerate fairly and responsibly

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