To understand the issues surrounding corporate governance,
you need first to understand the ways in which publicly owned companies
are structured, how they run themselves, and how responsibilities and
rights are distributed among all the stakeholders involved. And then
you may be interested in knowing whether the companies you invest in
run themselves ethically and efficiently, and what rights you have as
a shareholder.
Much of corporate governance has to do with the relationships between three parties: shareholders, directors, and company management. In this arrangement, directors oversee management to advance the interests of shareholders.
The basic structure
If you own shares of a corporation's stock, you own a portion of that company. If you have shares in a mutual fund that invests in the company, the fund, rather than you, is considered the owner of that company's shares.
Shareholders elect the board of directors to make major decisions affecting the company and to set its direction and strategy. To carry out its decisions, the board appoints company officers, most notably the chief executive officer (CEO), who heads the corporation's management, and the chief financial officer (CFO), who is responsible for the company's accounts and financial reporting.
Bylaws
Each corporation sets down its procedures and rules for governing itself in a document called its bylaws. The bylaws spell out the company's decision-making process, voting, meetings, compensation, and the major duties of directors and company officers.
