Corporate governance refers to the structure of a large business and how the business decides its policies and growth strategy. Corporate governance typically means that a board of directors controls the entire corporation while an executive board (possibly the same thing) makes key business decisions, and layers of management progress beneath them into different departments. Corporate governance is a key issue in society and can be a struggle for corporations on several levels.
First, corporate governance structures are very top heavy. They require many layers of management and long lists of vice presidents and presidents for information to pass through. This makes it very difficult for the company leaders to receive accurate, important data from the lower levels of the company, especially if managers along the way want to distort the message to make themselves sound better. Ultimately, the chain of command becomes so long that the business is unwieldy, responding slowly to change. Flat business structures with few layers of management are the goal of many corporations.
Corporate governance has earned a negative connotation in society, mostly because of the questionable practices of key executives and board members. Not all corporations commit fraud, of course, but those that do receive a lot of attention, and many executives have become used to taking questionably large bonuses even in a contracting economy. This has lead to an atmosphere of distrust among consumers and investors, which corporations fight by showing increased transparency in their work and mission.
Internally, corporate governance faces a different type of struggle. A board of executives can make good decisions on company policy and propagate standards throughout the business. But what if managers prefer not to listen? Rebellious managers can ignore or subvert corporate decisions at many levels of the business, and there are often a few troublemakers in all businesses. Corporate boards need methods of enforcing standards and disciplining managers when necessary, a component of governance few boards consider.
Board terms are a complex issue. In a board of directors, directors typically only sit on the board for a brief term, rarely more than several years. Life-term board members can cause problems with ingrained beliefs and concentration of power, so businesses prefer to cycle board members. But the corporation must decide how to cycle. If all directors switch around at the same time, the corporation may be left open for a hostile acquisition. If the board decides to stagger member terms, it must decide when to stagger and how to accomplish it.