Corporate governance has been described as “the system by which companies are directed and controlled.” Because of the importance of publicly traded corporations in society, there are significant issues over the focus of corporate governance, how power should be allocated within the corporation, and the role of law and non-legal mechanisms in protecting investors and other stakeholders and allowing those who manage to function effectively. Traditional concerns have focused on mismanagement and self-dealing, but modern scandals have focused on financial statements, risk management, and executive compensation.
This chapter will look at the importance of the publicly traded corporation in the US and the influence of the focus of corporate governance, the nature of shareholder ownership, and federalism on the policy and laws concerning corporate governance. This chapter will focus on both the internal and external corporate governance mechanisms and the significant effect of scandals in corporate governance.
US publicly traded corporations
The US has approximately 16,000 publicly traded corporations. At the end of 2008, there were over 6,000 listed companies on the New York Stock Exchange (“NYSE”) and the NASDAQ with a total domestic market capitalization of over US $11 trillion. Corporations during 2001 accounted for 60 percent of US gross domestic product (“GDP”). These corporations are not only major employers and taxpayers with a significant impact on the US economy, but also are an important repository for the savings of US citizens.