Corporate Governance Introduction In the broadest sense corporate governance is

Corporate governance introduction in the broadest

This preview shows page 6 - 7 out of 7 pages.

Corporate Governance Introduction In the broadest sense, corporate governance is the system of rules and policies that  dictate how a firm is directed and controlled. While every firm has a form of corporate  governance there are no two firms that are practically identical in the way in which they  are governed. The ideal corporate governance for a particular firm will adhere to the ever evolving  legal requirements as well as firm specific requirements. Learning Materials Corporate governance took center stage back when Enron and WorldCom’s scandals become public. While corporate governance always had a place in corporate America it was cases such as these that made it evident that more attention was needed.
Image of page 6
In 2002 the Sarbanes –Oxley Act was introduced in an effort to clean up the Boardroom and provide confidence to investors. This Act provided for reforms to improve the disclosures from public firms and to add a level of accountability. Both senior management and the Board were required to shoulder more responsibility for their roles and could no longer plead ignorance. Effectively senior management must now certify the accuracy of reported financial statements which adds a level of accountability that was never present before. The video below shows how the Enron scandal contributed to the creation of the Sarbanes-Oxley Act of 2002: More recently we have seen the Dodd-Frank Wall Street Reform and Consumer Protection Act enacted. While this is a comprehensive Act some of the governance related issues pertain to advisory votes by shareholders on executive compensation and golden parachutes. Additionally, pay for performance ratios must now be disclosed and any potential conflicts of interest involving compensation consultants must be disclosed. While these Acts certainly improve disclosures they come at a cost. Not only does government need to get bigger in order to police these reforms but the companies that are required to adhere to the reforms do so at cost that may seem prohibitive at times. It was found that the cost to adhere to SOX requirements were just under $3M the first year following the Act’s enactment. The question is whether or not the benefits outweigh the cost? The video below provides some insight into how financial executives perceive SOX: Summary It should become readily apparent that corporate governance is an evolving topic. While we make strides to improve governance through legislation there is still not a perfect  design that will fit all firms. The attention that corporate governance received from both  the media and investors help to exemplify how significant the topic is. With so much wealth tied to firms it is imperative that the firms are governed in the most  reasonable way possible. However, the cost of corporate governance should not become  prohibitively expensive.
Image of page 7

You've reached the end of your free preview.

Want to read all 7 pages?

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes