Chapter Three

Corporate Governance

Introduction

Some of the overriding reasons for the 2007–2009 financial crisis include ineffective regulation, greed, and the ineffectiveness of executives at troubled financial institutions. Effective corporate governance plays an important role in addressing these crises. Indeed, the phrase “corporate governance” appeared for the first time in many legislative reforms. Section 111 of the Emergency Economic Stabilization Act of 2008, better known as the Government Bailout of Troubled Financial Institutions, requires establishing executive compensation and corporate governance standards for those financial institutions. Corporate governance has transformed from a compliance process to a business strategic imperative in the twenty-first century. The demand for ever-improving corporate governance and accountability for business organizations appears to be a global trend in recent years. The recent wave of financial scandals and resulting global financial crises has reinvigorated interest in corporate governance. Effective corporate governance plays an important role in addressing these crises. This chapter presents the ethical and professional responsibilities of all participants in the financial reporting process, including the board of directors, the audit committee, executives, internal auditors, external auditors, financial analysts, legal counsel, regulators, and standard setters.1 Furthermore, this chapter examines corporate governance measures ...

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