The importance of corporate governance information and disclosure for investors

Corporate governance is concerned with the mechanisms that mitigate incentive problems created by the separation of the management and financing of business entities. Financial accounting information is essential for investors to address corporate governance issues. Financial statements, footnotes, and management’s discussion and analysis of the financial condition and results of operations offer both quantitative and qualitative information about firms. The DEF14A disclosure statement, also known as the “definite proxy statement”, provides investors with key information about a firm’s situation, not only from a managerial perspective but from an overall corporate governance perspective. It furnishes security holders with adequate information to vote confidently at an upcoming shareholder meeting. The DEF14A form contains information about the background of the firm’s nominating directors, top shareholders and holding details, potential conflicts of interest, board and executive compensations, audit fees, committees’ description and composition, risk monitoring statements, and other important details. Investors can read about the company’s director’s background and qualifications and make more informed decisions about their investments. The board of directors performs an oversight role within the firm by advising and monitoring top management on the firm’s overall performance. The board must assess, amend, and approve major strategic decisions made by management, select, monitor compensate and fire top management, and provide advice to top management. All these decisions require sound, solid, and diverse expertise among the board members.