"How does corporate governance even matter?" The bottom line..

Suppose the CFO or CEO of a company asks you the above question.
Forget value judgements and moral righteousness.
How would you convince the CFO/CEO that good corporate governance is worth the cost?

The carrots:

1. Corporate governance affects bond ratings
Bhojraj and Sengupta as well as Ashbaugh, Collins and LaFond have made arguments to that effect.

2. And therefore affects cost of capital
See above; as well as Gompers Ishii and Metrick's paper entitled Corporate Governance and the Cost of Equity Capital.

3. Corporate governance affects share price

4. Institutional investors' demand for a stock may depend on governance

5. Better compensation structure may result from stronger governance
Davila and Penalva found that stronger corporate governance is associated with higher proportion of equity in a CEO’s compensation package.

6. Governance may directly affect firm performance
Brown and Caylor found that seven of the metrics utilized by Institutional Shareholder Services (ISS), principally those related to director performance and senior management stock options, had an effect on firm performance. Bebchuk Cohen and Ferrell find that the entrenchment index (developed from six ISS corporate governance variables) improves firm performance.

And the stick:

5. Poor corporate governance can result in executives' employment termination

More on these individual issues (and more links to papers and findings) coming up.