Investopedia defines Corporate Governance as “the system of rules, practices, and processes by which a firm is directed and controlled”. Getting a little further into the weeds, the Harvard Business Review identifies two long-standing descriptions of what a corporation is, that define how it should be run.
In the first definition, a corporation is a “legal fiction”, a notional entity which exists to facilitate the interests of stakeholders. More recently, the idea of companies being “real entities” has been promulgated. In this version, corporations have a responsibility to various people and entities, both within and outside of the corporation.
The former definition allows unfettered capitalism to rule the roost since shareholder interests rest largely on the profit margin. The second formulation attempts to balance the conflicting interests of parties as varied as the C-suite, employees, consumers, lobbyists, unions, environmentalists, and, yes, shareholders.
