Corporate governance (CG)

Corporate governance addresses the triangular interaction between a company's shareholders, board of directors and management. In a somewhat wider context corporate governance also embraces the relationship between a company and parties other than shareholders such as employees, creditors, the local community and other parties with whom the company has a relationship.

Research has demonstrated that investors take a more positive view of companies recognized as having good corporate governance practices, and this in turn contributes to the market placing a higher value on such companies. In order to be recognized as having good corporate governance practices, companies must not only establish and communicate a clear policy on corporate governance but must also live up to this policy. Several of the recommended components of good corporate governance have been initiated by the investment community. Over time investors will choose to move liquidity away from companies that ignore these recommendations in favour of companies that do practice good corporate governance.