What is meant by corporate governance?

Corporate governance refers to the system by which companies are directed and controlled. It encompasses the relationships among the various participants in the governance process, including the management team, the board of directors, shareholders, and other stakeholders. This framework establishes accountability and a balance of power, aiming to ensure that the interests of all parties are respected and that the company operates in a legal and ethical manner.

Understanding corporate governance is essential because it defines how rights and responsibilities are distributed among these groups, leading to a more effective operational environment. By promoting transparency, fairness, and accountability, strong corporate governance can enhance a company's reputation and performance, ultimately fostering trust among investors and the public.

The other options, while related to business practices, do not capture the essence of corporate governance. Conducting financial audits is an aspect of corporate governance, but it is not the complete framework itself. Similarly, while laws regulating business operations can influence corporate governance, they do not define it. Strategies for investment and profit maximization focus more on financial goals rather than the governance structure that oversees company operations, making them outside the scope of corporate governance's primary definition.