Focuses on a firm’s relation of top management and the board to its stockowners and key stakeholders. Considerations include ownership structure, voting and proxy processes, board structure and tenure, ethical business practices, and executive compensation arrangements. Governance excludes dividend reporting.

Corporate governance concerns the formal and informal relations among stockowners (individuals and institutional owners) and top corporate managers and boards of directors. It is also defined by some to additionally include relations between those three groups (or some of them) and key stakeholders, e.g. customers, communities directly impacted by firm actions, employees, creditors and suppliers. Broader definitions would add: regulators/governments, media, auditors and others with significant interests in firm behavior. Governance itself refers to the mechanisms, processes and informal networks that define how the firm is controlled and directed, and how decisions are made. Increasingly governance is used by many significant actors to include management of environment and social issues (as in ESG). In many cases when investors and/or a firm views E and S issues as material (that is, may reasonably affect the value of the firm) they enter the governance arena, and may be a topic of engagement between owners and managers/boards or in proxy initiatives.  As such, is focused on process and organization/decision making, and a broader meaning, focused on sustainability issues that are or may reasonably become material.  Governance is used to exclude dividend reporting. 

A core part of governance in the U.S. focuses on conflicts of interests that may be inherent in the publicly traded firm, especially between top managers (and perhaps boards of directors) and external stockowners. Top managers are often considered to have significant rent seeking opportunities (managerial opportunism) inherent within their positions. Such opportunities can include compensation not linked to long(er) term performance; performance metrics that do not necessarily measure firm specific performance (e.g. ‘free ride’ on a rising stock market); perks such as corporate jets, golden pension plans, golden handshakes and parachutes; legal or illegal use of insider information; and hedging of non-cash compensation. Governance vis-a-vis shareowners attempts to align the long term interests of top managers (and sometimes boards) with those of long term shareowners, though law, negotiated firm-specific formal agreements, and informal means. Increasingly governance standards are mandated in law, codes of best practice, and sometimes settled in legal suits by courts.