I.         The concept of Corporate Governance

The importance of corporate governance rests on the characteristic separation between ownership and management of the enterprise, the fundamental character of modern capitalism.

Corporate Governance (CG) has assumed central importance as a tool to improve the transparency of financial markets, to ensure investors and to protect consumers.

CG refers to the way in which companies are governed and controlled (Reboa, 2002). In this sense it refers to the economic governance, to the structure and to the way of functionning of the social bodies, to the duties, responsibilities and obligations of the memebers in the Corporate.

The concept of CG is closely connected with the set of rules that define structures, mechanisms and processes, to improve the business of government and control of the company and, ipso tempore, to increase their performance. In particular CG concerns behavior and actions of those who govern the company are driven by the principles of fairness, transparency and respect for the rules.   

According to the SEBI committee: “Corporate governance is the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment to values, about ethical business conduct and about making a distinction between personal and corporate funds in the management of a company”(SEBI, 2003).

The Corporate Governance can therefore be defined as the system by which a company is managed and controlled. CG identifies the set of rules and institutions, legal and technical, aimed at ensuring the protection of stakeholders through proper management of the company in terms of governance and control.

In the opinion of UN Global Compact: “Corporate governance refers to the way that Boards oversee the running of a company by its managers, and how Board members are held accountable to shareowners and the company. This has implications for company behaviour not only to shareowners but also to employees, customers, those financing the company, and other stakeholders, including the communities in which the business operates” (UN Global Compact, 2009).

In this sense, the system of corporate governance is to be influenced by the characteristics of the ownership structure of the company and by the chanche to replace the group that holds the governance of the company.

The concept of corporate governance affects numerous different profiles, regarding the organizational structures of an enterprise – such as the allocation of powers and the functions of the various corporate bodies – the relationship between the shareholders and the management, the definition of the objectives to pursue, the preparation of appropriate tools to control the risk of the positions that have been taken, the protection of all those interests that are not part of the company but that are related to other stakeholders. An appropriate definition of the rules of corporate governance, as the profiles mentioned above, is an essential condition for achieving, within the enterprise, optimal levels of efficiency, and promotes the functioning of capital markets.

In recent years, the issue of efficiency and fairness of corporate governance has taken on particular importance in response to the crises and in relation to the behavior of the markets.

Corporate and institutional rules, as appropriate mechanisms, play a decisive role in directing enterprises towards virtuous objectives, and in preventing harmful side effects.

According to the OECD “Corporate governance is about the way in which boards oversee the running of a company by its managers, and how board members are in turn accountable to shareholders and the company. This has implications for company behaviour towards employees, shareholders, customers and banks. Good corporate governance plays a vital role in underpinning the integrity and efficiency of financial markets. Poor corporate governance weakens a company’s potential and at worst can pave the way for financial difficulties and even fraud. If companies are well governed, they will usually outperform other companies and will be able to attract investors whose support can help to finance further growth” (OECD, 2004).

Corporate Governance, in its broadest sense, is one of the key factor of the growth. In fact, for the growth of the economy – and thus of the society as a whole – rests on, first and foremost, investments.

Investors, be they small investors or large institutions (banks, pension funds, insurance funds, etc.). are likely to invest, and thus to support the growth of the company, only if there are sufficient guarantees about the behavior of those who are at the forefrontof the company, managers and majority shareholders.

The enterprises are therefore in need of being able to protect different goals and interests, often in opposition between them. The protection applies not only to investors who are interested in high returns, but also to consumers and workers.

The company and the managers must be able not to harm anyone’s interests and to ensure, at the same time, that the spirit of entrepreneurship and the ability to take risks are not repressed.

The financial and economic crisis – first started in the U.S. and then spreaded throughout the world – has shown that finding a balance is not easy; in the increasingly interconnected global economy, there are different rules and systems.

As previously mentioned, the importance of corporate governance rests on the characteristic separation between ownership and management of the enterprise, the fundamental character of modern capitalism.

Berle & Means emphasize that “over the enterprise and over the physical property – the instruments of production – in which he has an interest, the owner has little control. At the same time he bears no responsibility with respect to the enterprise or its physical property. It has often been said that the owner of a horse is responsible. If the horse lives he must feed it. If the horse dies he must bury it. No such responsibility attaches to a share of stock. The owner is practically powerless through his own efforts to affect the underlying property […] Physical property capable of being shaped by its owner could bring to him direct satisfaction apart from the income it yielded in more concrete form. It represented an extension of his own personality. With the corporate revolution, this quality has been lost to the property owner much as it has been lost to the worker through the industrial revolution” (Berle & Means, 1967).

The separation between ownership and control, and therefore the importance of Corporate Governance, are capital, notably in reference to the US and the global market, considering the enormous power embodied in Corporations.

With dramatic nuances Berle e Means state: “the rise of the modern corporation has brought a concentration of economic power which can compete on equal terms with the modern state – economic power versus political power, each strong in its own field. The state seeks in some aspects to regulate the corporation, while the corporation, steadily becoming more powerful, makes every effort to avoid such regulation…. The future may see the economic organism, now typified by the corporation, not only on an equal plane with the state, but possibly even superseding it as the dominant form of social organization. The law of corporations, accordingly, might well be considered as a potential constitutional law for the new economic state, while business practice is increasingly assuming the aspect of economic statesmanship” (Berle & Means, 1967).

The crisis and the scandals, in recent years, have shown the low confidence or a crisis of de-legitimization of the managers of large corporations, can produce deleterious effects both for the individual firm, both for the economy as a whole.

CG is also about ethical conduct in business.

“Corporate governance Ethics is concerned with the code of values and principles that enables a person to choose between right and wrong, and therefore, select from alternative courses of action. Further, ethical dilemmas arise from conflicting interests of the parties involved. In this regard, managers make decisions based on a set of principles influenced by the values, context and culture of the organization. Ethical leadership is good for business as the organization is seen to conduct its business in line with the expectations of all stakeholders” (SEBI, 2003).


Reboa M., Proprietà e controllo d’impresa. Aspetti di Corporate Governance, Giuffrè, Milano, 2002.

Report of the SEBI Committee on Corporate Governance February 8, 2003,

UN Global Compact – Global Corporate Governance Forum – International Finance Corporation, (2009) Corporate Governance The Foundation for Corporate Citizenship and Sustainable Businesses, New York – Washington DC.

OECD (2004), Speech following the adoption of the 2004 Review of the OECD Principles of Corporate Governance.

Berle A. – Means G., The Modern Corporation and Private Property, Harcourt, Brace and World, New York, 1967 (first ed. 1932).