Final answer:
The board of directors is crucial in corporate governance and oversight representing shareholders' interests, but sometimes top executives influence their selection. Auditing firms provide another layer of oversight, yet corporate governance can fail as in the Lehman Brothers case. Large investors also influence governance, but shareholders sometimes lack the incentive to nominate board candidates.
Step-by-step explanation:
The board of directors, who are elected by the shareholders, serve as the primary entity for corporate governance and oversight within a company. Their role is critical in ensuring that the company operates in the best interest of its shareholders. However, real-world challenges exist, such as the influence of top executives over the nomination and election of board members, which can potentially impact the true independence of the board. Additionally, the use of external auditing firms adds a level of oversight to the company's financial practices, enforcing accountability and transparency. Sadly, in events such as the Lehman Brothers scandal, it's evident that sometimes these governance structures can fail, leading to a lack of accurate financial information for investors and other stakeholders.
The involvement of large investors, like those managing mutual funds or pension funds, represents another layer of corporate governance because these investors hold significant stakes in the company and therefore expect sound management and good governance. Despite these measures, there are instances where even knowledgeable shareholders may not engage deeply in nominating board candidates due to lack of personal incentive or the complexities and costs involved. Thus, ensuring effective corporate governance is a multifaceted challenge that demands a robust system where the board of directors, auditors, and investors actively perform their roles.