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Financial Regulation and Compliance: How to Manage Competing and Overlapping Regulatory Oversight, + Website by H. David Kotz

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CHAPTER 2 How to Strengthen Governance and Compliance in Light of New Regulations

Corporate governance refers to the set of policies, principles, and processes by which a company is governed. These provide the guidelines as to how a company can be controlled and directed. Corporate governance involves a set of relationships between a company's management, its board, its shareholders, and other stakeholders. The most important principles associated with good corporate governance include conducting business with integrity, complying with the applicable rules and regulations, demonstrating responsibility and accountability toward stakeholders, and achieving transparency in connection with company decisions. Good corporate governance can improve a company's reputation, engender confidence in its leadership, encourage investment, and positively impact its share price.

In order to achieve good corporate governance, companies must have in place effective controls and risk management processes to identify potential deficiencies and failures and provide for overall monitoring of corporate activities. Through risk management, companies identify, assess, and prioritize all kinds of risk. Once this is accomplished, a plan is created to minimize or eliminate the impact of a negative event.

After joining the SEC as its Inspector General in December 2007, I conducted one of the first assessments of the causes of the financial crisis. On September 25, 2008, my office issued a comprehensive ...

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