Final answer:
Corporate governance involves oversight by a board of directors, auditors, and large shareholders ensuring companies adhere to rules and laws. It is fundamental for maintaining transparency and accountability within a public company. Failures in this system, as in the case of Lehman Brothers, can result in misinformation to investors.
Step-by-step explanation:
Corporate governance refers to the rules and laws by which companies are operated, controlled, and regulated. Its main components include the board of directors, the auditing firm, and outside investors, such as those with significant mutual funds and pension funds. In the structure of corporate governance, the board of directors, elected by the shareholders, serves as the primary oversight for top executives. Auditors provide a second layer of oversight by reviewing financial records. Large shareholders represent a third aspect of governance that holds significant sway over company operations.
In a public company scenario, shareholders elect a board that oversees executive management. However, as seen in the case of Lehman Brothers, failures in corporate governance can lead to a lack of accurate financial information for investors, illustrating the critical importance of robust and effective corporate governance mechanisms.