Rasmusen Weblog

Corporate governance is the system of checks and balances that guides the decisions of corporate managers. As such, it affects the strategy, operations, and performance of business firms over a large segment of the economy: corporations during 2001 accounted for 60 percent of U.S. gross domestic product (GDP). Corporate governance also affects the ability of those outside the corporation---including investors--to monitor the quality of management and its decisions and to influence and even control some of those decisions. This observability, or transparency, can greatly enhance a corporation’s ability to raise funds from outside investors. It can also make it easier for other outsiders, including suppliers and customers, to transact with the corporation, by making the incentives and abilities of its managers and other employees more clear.

Households increasingly participated in the ownership of corporate stock during the 1990s. Fewer than one-third of U.S. households--31.6 percent-- owned corporate stock directly or indirectly in 1989. By 1992 that number had grown to 36.7 percent. More than half--51.9 percent--of households owned stock as of 2001, the latest year for which comparable survey statistics are available.