Transparency in Corporate Governance
University of Phoenix
MMPBL/570 – Corporate Governance
Transparency in Corporate Governance
In light of numerous corporate scandals of the 21st century, the United States corporate governance system appears to be in bad shape; this is seen in the most recent of unethical business practices displayed within the likes of American International Group, Inc. (A.I.G.) and Madoff Investment Securities LLC. As a result of those scandals, the business press still focuses relentlessly on the corporate board and governance failures of Enron, Arthur Anderson, and WorldCom. The scandals took a toll on consumers’ confidence and portfolios, and undermined their faith in the accounting profession. Corporate stakeholders have called for more transparent financial reporting and evidence of better ethical conduct. In 2005, Securities Exchange Commission chairman William H. Donaldson said that restoring the public’s confidence in the accounting profession was the Sarbanes-Oxley Act’s (SOA) primary goal. Part of restoring the public’s confidence entails auditors and auditees adopting best practices, including transparency.
Some negative reaction to Sarbanes-Oxley has been noticed, “Because it is easy to quantify the cost and extremely difficult to quantify the benefits” (Taylor, 2005). Improved financial reporting accuracy is a benefit, but placing a value on it becomes difficult. Financial reporting fraud and misstated earnings can result in billions of dollars in costs. In a survey of 222 financial executives, conducted by Oversight Systems, 52% believe Congress had good intentions in passing SOX but the costs were not considered. The survey results state that 38% believe SOX was an over-reaction by Congress to the unethical behavior of a few executives and 28% avow the market requires regulations to increase investor confidence in the market. 13% replied that the benefits of SOX outweigh the costs of complying while 25%...