International Encyclopedia of Social and Behavioral Sciences
Posted: 22 Feb 2000
Date Written: 2000
Corporate governance problems arise because corporations are fictional entities, with a legal status that is separate from any of the individuals involved in them. They are not, themselves, actual persons, yet numerous different groups of individuals --- investors, employees, managers, suppliers, customers --- may have interests at stake in them. Often, they are managed by hired executives. Hence, decision-making authority in corporations is generally separated from personal responsibility and liability. Neither managers (the active decision makers), nor other employees, nor investors (who enjoy the protection of "limited liability") necessarily bear the direct costs of corporate actions.
This article, written as the entry on "corporate governance" for the forthcoming International Encyclopedia of Social and Behavioral Sciences, provides a brief discussion of the central governance problems and common mechanisms used to address these problems in the U.S. and in other countries.
JEL Classification: K22
Suggested Citation: Suggested Citation