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Corporate Goverance

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Please identify the corporate governance problems leading up to the corporate scandals of the early 21st century, also the influence of the governance rating industry on American corporations. Evaluate at least two governance-rating methodologies and America's reaction to the rating system.

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Please identify the corporate governance problems leading up to the corporate scandals of the early 21st century, also the influence of the governance rating industry on American corporations. Evaluate at least two governance-rating methodologies and America's reaction to the rating system.

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One of the major corporate governance problems that led to corporate scandals in the recent past are those related to transparency of financial reporting. Transparent financial reporting is essential to delivering effective corporate governance. Financial reporting supports investor confidence by providing information about the condition, performance and risk profile of the firm concerned.

However, various factors can hamper effective disclosure, including (i) incomplete and unenforceable contracts; (ii) managerial advantages resulting from asymmetric information situations; and (iii) opportunistic managerial behaviour. These were some of the reasons that led to accounting scandals at large corporations like Enron.
Harmful incentive structures, conflicts of interests, and the absence of transparency seem to be key issues in addressing shortcomings in current corporate governance arrangements.

source: http://ec.europa.eu/economy_finance/publications/economic_papers/2004/ecp200en.pdf.

Many audit committees rely almost exclusively on the outside auditor in performing their task of monitoring management and providing good corporate governance. Unfortunately, there is a serious disconnect ...

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Sandeep Bardia, MBA
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  • BCom, SGTB Khalsa College, University of Delhi
  • MBA, Rochester Institute of Technology
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