At the core of corporate governance is the relationship between what are often termed the “insiders” of firms – dominant shareholders and senior managers – and the “outsiders” who include small shareholders, the creditors of the firm, its employees and customers and the general public.
A key objective of corporate governance is to ensure that the insiders who control the management of a firm do not abuse their control and act in a manner which is detrimental to the interests of outsiders. Good corporate governance is even more important for banks than it is for non financial firms, for two key reasons.