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Risks of Noncompliance in Corporate Governance

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Risks of Noncompliance in Corporate Governance
Organizations must address compliance concerns to ensure their longevity. There is a measurable amount of risk associated with falling out of compliance. The degree of risk to an organization differs from one compliance issue to another. As a team, think about the recommendations in your proposals to McBride from week three. Using these recommendations, write a 2,100-2,450-word paper in which you:

Step 1
Individually, compare and contrast the cost of staying in compliance against the possible repercussions associated with noncompliance for at least two of your recommendations. Make sure to evaluate the specific risks associated with noncompliance in each recommendation.

Step 2
As a team, conduct research in the university library to find at least three organizations that use committees within their corporate governance structure. Describe these organizations and evaluate their use of the committees to mitigate risks associated with compliance.

Step 3
As a team, explain how McBride should use committees to mitigate the risks associated with at least three of your recommendations.

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Risks of Noncompliance in Corporate Governance

At the beginning of 2007, Allianz President Life Insurance received "the highest ever fine for a single insurer, for the company's failures in legal compliance and corporate governance" (Chung, 2007), one of many companies that have had to deal with the risks of noncompliance in corporate governance. Sometimes the risks companies take when not complying with corporate governance is small, and sometimes, like Allianz President Life Insurance found out, the risk are very high.
This paper compares and contrasts a variety of corporate governance compliance recommendations that can help McBride Financial stay successful. The paper also discusses how three companies use committees as part of corporate governance, and how McBride Financial can use committees to mitigate the risks involved with non-compliance.

Compare and Contrast Compliance

The Role of Independent Audit Committee and Directors in Compliance

One of the major causes of the breakdown in corporate governance is the practice of opaque self-dealing by a relatively small number of corporate insiders. This practice included such actions as insider trading and a lack of transparency in corporate and government operation. Statistical analysis indicates that a lack of transparency on all levels goes hand in hand with reducing a company's share of emerging market funds (Wei & Milkiewicz, 2003).

To achieve transparency NYSE, AMEX, and NASDAQ rules demand that the majority of directors that sit on public company boards are independent. Furthermore Section 301 of Sarbanes-Oxley requires that audit committees be composed of independent directors. This stipulation goes hand-in-hand with the NYSE, AMEX, and NASDAQ rules and accomplishes many of the same objectives (AICPA, 2008).

Independent directors act in the best interest of the company to identify, disclose and explain in detail all the potential interests that may conflict with those of the company in order to allow them to make valid judgments on possible adverse effects of such interests. This allows conflicted parties to excuse themselves from participating in discussions and decisions regarding the issues in question (Asian Development Bank, 2003).

Successful audit committees are those, which are made up of independent directors, who have the necessary knowledge of accountancy, financial analysis, and financial reporting along with a good understanding of the core business of the company. Audit committees should also have a written mandate stating best practices; hire only independent external auditors who report directly to the committee; and insist on having an appropriate system of internal control and risk management, which is an integral part of the company's culture (Asian Development Bank, 2003).

McBride Financial Services (MFS) can achieve the transparency that will bring it a larger share of emerging market funds through compliance with NYSE, AMEX, and NASDAQ rules as well as with Section ...

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