Essentials of Corporate Governance

Chapter 9. Regulations and Strategies for Corporate Governance

After reading this chapter, you will be able to

• Understand the significance of the Sarbanes-Oxley Act

• Understand the importance of Securities and Exchange Commission proxy reform

• Understand the role of the Organization of Economic Co-operation and Development

• Understand the Balanced Scorecard

The way that a company is run determines the level of confidence that its shareholders and other stakeholders will have in it. A company with a strong performance history will garner more trust and in turn will likely reap financial benefits. Investors will be more likely to buy stock, the company will have an easier time wooing top executives, and partnerships will be quicker to form.

There is another consideration, however, that goes beyond the individual company; that is the consideration of the market as a whole. A marketplace in which most, or all, companies have a strong image will benefit as the individual corporation does, but in an aggregate manner.

The companies within this market will have greater trust from their shareholders and a higher investment base on which to build their organizations. Similarly, these companies will also require fewer regulations and therefore enjoy greater freedom.

Unfortunately, it takes only a small number of highly publicized, poorly run companies to taint an entire market. Suddenly all corporations, even those already strongly run, face the same investor suspicion, the same strict regulations, and ...