Learn in the textbookCorporate Governance and Administrative / Environmental Laws
DefinitionCorporate governance (コーポレートガバナンス) is the mechanism by which shareholders, the board of directors and others watch whether management runs the company in line with its purpose and its investors' interests, and correct it when necessary.
ExplanationSeparating the role of overseeing management from the role of running the business, and placing people free from internal interests on the overseeing side, curbs unchecked or fraudulent conduct by management. Concrete measures include adding outside directors with no ties to the company or its executives to the board, and having corporate auditors audit how directors carry out their duties. In Japan, beyond the corporate bodies prescribed by the Companies Act, the Corporate Governance Code for listed companies sets out principles for this approach.
AnalogyIt is like a lookout sent by the shipowner checking from the deck that the captain has not strayed off course.
Memory hookGovernance comes from a Latin word meaning 'to steer'. Link it to a mechanism that checks whether the company's helm is being steered properly.