Origins of Corporate Governance

Throughout the 20th century, the economies of many countries became increasingly involved in the currents of international trade and the expansion of global financial transactions.  Within this context, companies underwent significant transformations as fast business growth led to a realignment of control structures, as ownership and management decoupled. Corporate governance issues arose because of conflicts involving dispersed ownership and differences between the interests of shareholders, executives and the company itself.

The most widely accepted position states that corporate governance was initially intended to overcome the classic "agency ". In this situation, the owner (shareholder) delegates corporate decision-making powers (as determined by law) to a specialist agent (administrator) in which case, differences may arise between both groups position on what they consider to be best for the company, an issue that Corporate Governance practices are intended to eliminate. This type of conflict is more common in companies such as those from the US and England, where company ownership is more dispersed.

In Brazil, where ownership is more concentrated, conflicts have intensified as companies have grown and new shareholders, be they investors or heirs, have become stakeholders. In this situation, Governance also attempts to address these issues for the benefit of the company.

As a result, the goal of Corporate Governance is to create an effective pack of mechanisms that offer both incentives and oversight in order to assure that management decisions always reflect the company's best interests.