Weak CG is a common thread found in many company failures. A lack of proper oversight by the board of directors, inadequate protection for minority shareholders, and incentives at companies that promote excessive risk taking are a few examples of problems. Poor corporate governance practices have been cited as significantly contributing to the 2008–2009 global financial crisis.
In response to these company failures, regulations have been introduced to promote stronger governance practices and protect financial markets and investors. Academics, policy makers, and other groups have published numerous works discussing the benefits of good corporate governance and identifying core corporate governance principles believed to be essential to ensuring sound capital markets and the stability of the financial system.
The investment community has also demonstrated a greater appreciation for the importance of good corporate governance. The assessment of a company’s corporate governance system, including consideration of conflicts of interest and transparency of operations, has increasingly become an essential factor in the investment decision-making process. Additionally, investors have become more attentive to environment and social issues related to a company’s operations. Collectively, these areas often are referred to as environmental, social, and governance (ESG).
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