chapter  13
19 Pages


The term corporate governance refers to the structure, participants, and processes by and through which corporations are managed. This chapter thus deals with the questions of who controls the modern corporation, who makes the crucial decisions about the use of corporate resources, and who decides what the corporation does and what activities it pursues. These questions are important because of the emphasis on property rights in a capitalistic system. The owners of the corporation, i.e., its stockholders, should ultimately control the corporation and be the major factor in the governance process. They supply the fi nancial capital the corporation needs and have legal ownership of a certain number of shares in the corporation. Thus they collectively own the corporation and should have confi dence that it will be used to further their interests.