Corporate Governance and Ethics

Chapter 2

Corporate Governance

INTRODUCTION

DEfiNITION OF CORPORATE GOVERNANCE

ASPECTS OF CORPORATE GOVERNANCE

CORPORATE GOVERNANCE STRUCTURE

SOURCES OF CORPORATE GOVERNANCE

CORPORATE GOVERNANCE REFORMS

SARBANES-OXLEY ACT OF 2002

CORPORATE GOVERNANCE RATING

CORPORATE GOVERNANCE REPORTING

GLOBAL CONVERGENCE IN CORPORATE GOVERNANCE

SUMMARY

KEY TERMS

REVIEW QUESTIONS

DISCUSSION QUESTIONS

NOTES

INTRODUCTION

Many initiatives and developments during the past several decades have shaped corporate governance. The early developments underscored the need to ensure that management acts in the sustainable well-being of the company and its shareholders. Recent developments of the late 1990s and the early 2000s reinvigorated interest in, and focus on, effective corporate governance to protect shareholders and other stakeholders (e.g., employees, creditors, customers) from managerial misconduct and corporate malfeasance. Corporate governance reforms, including SOX and related SEC implementation rules, listing standards of national stock exchanges (New York Stock Exchange [NYSE], Nasdaq, American Stock Exchange [AMEX]), and best practices and guiding principles of professional organizations (National Association of Securities Dealers [NASD], The Conference Board), came in response to the wave of financial scandals in high-profile public companies. These reforms require professional accountability, personal responsibility, and integrity for all participants. Corporate governance has transformed ...