Final answer:
Corporate governance is the framework organizations use to achieve their goals and objectives, involving the board of directors, auditing firms, and outside investors to ensure transparency and accountability. The board answers to shareholders and oversees executive management. Governance failures, like in the Lehman Brothers case, can lead to serious consequences.
Step-by-step explanation:
The framework by which an organization achieves its goals and objectives is known as corporate governance. This involves a set of practices and processes that a company's board of directors implements to direct and manage the business affairs to enhance business prosperity and corporate accountability, thereby ensuring its long-term survival. The board of directors is elected by the shareholders and is the primary institution responsible for overseeing the executive management to ensure that shareholders' interests are protected.
Corporate governance encompasses various aspects, from internal controls to performance measurement and corporate disclosure. The auditing firm that is hired by the company to go over the financial records and outside investors, especially significant shareholders such as mutual funds or pension funds, are also crucial components of the corporate governance mechanism. In high-profile cases like Lehman Brothers, a failure in corporate governance mechanisms resulted in the dissemination of inaccurate financial information to investors, leading to serious consequences.