Corporate governance is the system of rules, practices, and processes put in place to guide how a company is directed and controlled.
For example, after a family-owned manufacturing company brings in two outside investors, it strengthens its corporate governance by establishing a formal board of directors, creating an audit committee, and implementing a code of conduct for all employees.
Why it matters: Strong governance builds trust with investors, lenders, and regulators, which lowers the cost of capital and reduces legal risks.
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