System by which companies are run and the means by which they are accountable to their shareholders, employees and the regulatory authorities. Directors are expected to run companies soundly and prudently. See COMBINED CODE OF CORPORATE GOVERNANCE; TURNBULL REPORT.
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A system specifying the division of duties, rights, and responsibilities among various participants in a corporation, such as the board of directors, the various committees within the board of directors, operating managers, and shareholders. Corporate governance enumerates the rules, guidelines, and procedures for making decisions affecting corporate affairs. The term has received particular attention in recent years because of massive lawsuits against the directors and officers of a number of high-profile corporations that filed for bankruptcy. Many business commentators, as well as insurance industry observers, believe that a breakdown of corporate governance, especially in the area of financial and accounting controls, was largely responsible for such failures.