Corporate Governance and Ethics

Chapter 1

The Free Market System and Business

INTRODUCTION

THE FREE ENTERPRISE SYSTEM AND CAPITAL MARKETS

PUBLIC TRUST AND INVESTOR CONFIDENCE

THE ROLE AND RESPONSIBILITY OF BUSINESS IN SOCIETY

THE ROLE OF FINANCIAL INFORMATION IN THE CAPITAL MARKETS

INTRODUCTION TO CORPORATE GOVERNANCE

INTRODUCTION TO BUSINESS ETHICS

CLASSROOM IMPLICATIONS OF THIS BOOK

SUMMARY

KEY TERMS

REVIEW QUESTIONS

DISCUSSION QUESTIONS

NOTES

INTRODUCTION

This chapter presents the dynamics of relationships between capital markets and businesses as perceived by investors and transformed through corporate governance. Corporate and accounting scandals at the turn of the twenty-first century eroded public trust and investor confidence in corporate America and its financial reports. Several initiatives and reforms, including the Sarbanes-Oxley Act of 2002 (SOX), listing standards of national stock exchanges, corporate governance best practices, and business ethics guidance were established to restore investor confidence in public financial information. These reforms are a continuous process, creating new measures and practices for public companies and their directors, officers, accountants, auditors, legal counsel, financial analysts, investing banks, and others to effectively fulfill their responsibilities and discharge their accountability. This chapter provides an introduction and background as a plan for corporate governance and business ethics presented throughout the book.

Primary Objectives

The primary ...