Thursday, February 13, 2020

The Regulatory Response to the Corporate Scandals in the USA and the Essay

The Regulatory Response to the Corporate Scandals in the USA and the EU was Diametrically Different - Essay Example In order to have this assurance, investors generally rely on the published annual report and accounts of companies. However, although the annual report and accounts may provide a reasonable approximation of companies’ activities, there are issues not shown in the annual report and accounts that could affect these companies’ financial situations, as well as the reputation of international stock markets2. For instance, despite the fact that the annual report and accounts seemed healthy, the last decade faced a large number of corporate scandals and collapses. These corporate crises have affected several people, as in the case of shareholders, managers, directors, employees and consumers. Some would argue that the main cause of these corporate crises is the weakness of corporate governance regulations in the world, as well as a need to have good corporate governance codes in order to prevent further scandals and collapses.3 As a consequence, countries have been trying duri ng the last decade to develop and update their corporate governance systems. ... In this part, the shortcomings of the USA and the EU regulations that appeared after scandals will be mentioned. Subsequent to that, the difference of the USA response will be explained. In this part, the Sarbanes-Oxley Act and its new provisions, Sections 302 and 404, will be discussed. Finally, the differences of the EU response will be discussed in light of the national and the pan-European level. 1. Corporate Governance Evolution and Scandals It is widely believed that the development of corporate governance codes has often been driven by financial scandals, corporate collapses and similar crises. For instance, at the beginning of the 1990s various financial scandals and corporate collapses happened in the UK, as in the case of Coloroll, Polly Peck and Maxwell.5 These crises led the Financial Reporting Council and the London Stock Exchange to establish the Committee on the Financial Aspects of Corporate Governance in May 1991; Sir Adrian Cadbury chaired this council in order to i mprove the UK’s Code of corporate governance. As a consequence, in December 1991 the Committee issued the Cadbury Report that influenced many corporate governance codes across the world.6 The Report stated several recommendations that focused on corporate governance issues, in particular, the operation of the main board, the role of non-executive directors and the reporting and control mechanism of firm.7 Additionally, the development of corporate governance codes, supported by many non-governmental organizations, issued principles and practices that should govern corporates globally.8 For example, the Organization for Economic Co-operation and Development (OECD) published its Principles of Corporate Governance in 1991; this was revised in 2004.9

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