Answer to Question #230843 in Economics for taiba

Question

What do you understand by the term “Corporate Governance?” While explaining the concept, discuss both the 

“market model” and the “control model.”

Answer 1

Corporate governance is the system of rules, practices and processes by which a company is directed and controlled. Corporate Governance refers to the way in which companies are governed and to what purpose. It identifies who has power and accountability, and who makes decisions.

A market-based corporate governance system relies on investors to exert influence on the management of the company. It defines the responsibilities of the different participants in the company, including shareholders, the board of directors, management, employees, suppliers, and customers.

Social Control Model of corporate governance argues for full-fledged stakeholder representation in the board. According to this model, the creation of Stakeholders Board over and above the shareholders determined Board of Directors would improve the internal control systems of the corporate governance.