Pathology Of Failure In Governance Vs The Board's Real Strategic Contribution.

3148 words - 13 pages

IntroductionThe wave of corporate malfeasance has dominated the business news and attracted attention of a growing number of governments, regulatory bodies, professional organizations and legislators across the globe in recent years since collapses and scandals occurred at some famed multinational firms like Enron, WorldCom, Adelphia, and Tyco in U.S.A, HiH in Australia, Brenner Vulkari and Metatlgesellschaft in Germany, BCCI in the UK, Parmalat in Italy, even Qantas in NZ etc. These ongoing corporate events touched off by mentioned above have seriously impacted stock markets around the world and made investors generally skittish. Calls for corporate governance reform are reverberating throughout the world for the purpose of compromising weakened financial markets therefore restoring investor's confidence. In reality, professional bodies and legislators have made contributions to achieve this goal. For instance, in the United States, the president George W. Bush signed Sarbanes-Oxley Act of 2002 which is prominent to respond governance failures at foregoing firms of USA. At the meantime, a series of corporate governance proposals designed to ensure the independence of directors, enhance corporate accountability and financial transparency have been approved by US organizations such as NASDAQ, The New York Stock Exchange (NYSE), and The Institute of Internal Auditors (IIA). In Italy, in response to the pressure from recent Parmalat scandal, from the ongoing integration of European capital markets and from international, primarily U.S, the new legislation has been launched aiming to strengthen the country's capital markets and competition with other centers in Europe (Berglof, 1997).Corporate governance reforms regardless of in U.S, EU, Australia and New Zealand, do help to provide companies with guidelines of achieving better corporate governance so as to avoid repeat of collapses or financial scandals. On the other hand, it has been suggested that professional bodies and legislators have focused on the pathology of failure in governance rather than the board's real strategic contribution. Effective governance, as a dynamic, preventive process throughout sorts of levels from shareholders even to employees, must be achieved by effective board of directors as Paredes (2003) emphasized that an effective board of directors is central to good corporate governance; and good corporate governance, in turn, is central to good corporate performance. Therefore, the pursuit of reasons of governance failure is though important, the board's strategic role could be ignored on the grounds that strategic contribution is an essential function of the board which is same as its other ones like monitoring, auditing, and shareholder value creating. Ignorance of board's real strategic role would be matters of attending to trifles but neglecting essentials.The reasons of governance failure of Enron in U.S and Parmalat in Italy will be tracked in the paper thereafter...

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