WELCOME TO ACCT 7050: Corporate Governance Ethics and Business Sustainability

Professor Zabi RezaeePhD, CPA, CMA, CIA, CFE, CGFM

Thompson-Hill Chair of Excellence & Professor of Accountancy

Fogelman College of Business and Economics The University of Memphis

Financial Statement Fraud: Prevention and Detection

Review in Journal of Accountancy, December 2002, pp. 89−90:“Financial Statement Fraud is a good reference for understanding some of the current corporate financial statement problems and making sure that financial statements are correct.”

Review in Internal Auditing May/June 2002, p. 46−47:“This professional reference is highly recommended reading for all internal auditors and should be included in all internal auditing libraries and used in internal auditing training programs. This book should hit the bestseller lists rather quickly.”

by Zabihollah Rezaee, published by John Wiley &

Sons, March 2002

Cooking the Books = FSF = CRIME

FSF = Crime

IncentivesMonitoring

EndResults

Cooks

Recipes

Financial Statement Fraud Formula

Cooks +Recipes +Incentives +Monitoring (lack of) +End Results =

CRIME

Lynn Turner writes, “Corporate Governance Post-Sarbanes-Oxley appropriately provides the reader with a useful discussion of emerging and contemporary issues confronting those involved with corporate governance including those in the monitoring function, as well as those in the growing field of not-for-profit organizations. And it adds an international flavor to its pages, which is unquestionably important and useful as today’s largest investors as well as accomplished management teams and directors come from a multitude of countries.”

Michael McCauley, Director of Corporate Governance for the Florida State Board of Administration, wrote, “Corporate Governance Post-Sarbanes-Oxley offers one of the most comprehensive examinations available. Dr. Rezaee achieves an in-depth, thorough review of today’s corporate governance landscape and provides a sound perspective for the reader. His systematic description offers a practical guide for any investor interested in the role of governance within the capital markets. An excellent book.”

Corporate Governance Post-Sarbanes-Oxley: Regulations, Requirements, and Integrated Processes

by Zabihollah Rezaee, published by John Wiley &

Sons, 2007

Chinese Translation of the Book: Corporate Governance Post-Sarbanes Oxley

Corporate Governance and Ethics by Zabihollah Rezaee

Published by Wiley, July 2008

http://www.youtube.com/watch?v=7LYmAY5dUS4,,VIDEO

Business Schools• How Business Schools Have Failed Business: “Why not

more education on the responsibility of boards?" by Michael Jacobs, The Wall Street Journal, April 24, 2009 --- http://online.wsj.com/article/SB124052874488350333.html

• “By failing to teach the principles of corporate governance, our business schools have failed our students.”

• “B-school graduates have matured into executives and investment bankers who have failed American workers.”

• Do you think B-schools prepare the most competent and ethical future business leaders?

Business Curriculum

• Business schools should provide higher education with relevant curriculum.

• Three areas recently receiving long-awaited attention are:• Business ethics• Corporate governance• Internal auditing• Forensic Accounting• Business Sustainability

• Business schools play an important role in preparing the next generation of ethical and competent business leaders.

• Internal auditing should be emphasized in the accounting and business curricula.

Why Teach Corporate Governance Ethics and Forensic Accounting?

• Reported financial scandals (e.g., Enron, WorldCom, Global Crossing, Adelphia, Qwest, Parmalat, Madoff, Satyam) underscore importance of vigilant corporate governance and ethical conduct by corporations.

• The Sarbanes-Oxley Act (video) of 2002 (SOX) is intended to improve corporate governance by enforcing more accountability for public companies and requiring adoption of a code of ethics for their executives.

• Anecdotal evidence and academic studies suggest that corporate governance ethics and internal auditing are not properly integrated into business education, and coverage of these issues should be increased.

• The Association to Advance Collegiate Schools of Business International (AACSB) has promoted the integration of business ethics and corporate governance into the business curriculum.

• AACSB in its task force report promotes the coverage of business ethics and corporate governance in the business curriculum.

• Professional organizations (AICPA , ACFE and AAA) promote forensic accounting practice and education.

• The AACSB report identifies four important areas as the “cornerstones of a comprehensive and viable ethics education curriculum in business schools”: 1) responsibility of business in society2) ethical decision making3) ethical leadership4) corporate governance

SARBANES-OXLEY ACT OF 2002

SOX was signed into law on July 30, 2002, to reinforce corporate accountability and rebuild investor confidence in public financial

reports. It was designed to:

(1) establish an independent regulatory structure for the accounting profession;(2) set high standards and new guiding principles for corporate governance;(3) improve the quality and transparency of financial reporting;(4) improve the objectivity and credibility of audit functions and empower the audit committee; (5) create more severe civil and criminal remedies for violations of federal securities laws; and (6) increase the independence of securities analysts.

Summary of the Provisions of SOX 1. Enhanced audit committee responsibility for hiring, firing, compensating, and overseeing auditors and preapproval of non audit services2. Disclosure, in the periodic reports, whether the audit committee has at least one member who is a “financial expert” and if not, why not3. CEOs and CFOs certification of the accuracy and completeness of quarterly and annual reports4. Management assessment and reporting of the effectiveness of disclosure controls and procedures5. Ban on personal loans by companies to their directors or executives other than certain regular consumer loans6. Establishment of procedures by each audit committee for receiving, retaining, and handling complaints received by the company concerning accounting, internal controls, or auditing matters7. Review of each quarterly and annual report (forms 10-Q and 10-K) by officers8. Forfeiture by CEO or CFO of certain bonuses and profits when the company restates its financial statements due to its material noncompliance with any financial reporting requirements9. Improper influence on conduct of audits10. Insider trades during pension fund blackout periods11. Officers and directors’ bars and penalties for violations of securities’ laws or misconduct

Summary of the Provisions of SOX Financial Reporting

1. CEO/CFO certification of financial reports2. Internal control report by management3. Attestation and report by auditors on management’s assessment of internal controls4. Disclosures of off–balance sheet arrangements5. Disclosures of contractual obligations6. Disclosures of reconciliation of non-GAAP financial measures pertaining to pro forma financial information7. Disclosures of material correcting adjustments by auditors8. Disclosures of transaction involving management and principal stockholders9. Accelerated filing of changes in beneficial ownership by insiders10. Real time disclosures of information concerning material changes in financial condition or operations (form 8-K disclosures)11. Periodic review of published financial statements by the SEC at least once every three years12. SEC-enhanced authority to determine what constitutes U.S. GAAP

Summary of the Provisions of SOX Audit Functions

1. Establishment and operation of the Public Company Accounting Oversight Board (PCAOB), an independent nongovernmental agency2. Registration with the PCAOB of public accounting firms that audit public companies3. Requirement that auditors be appointed, compensated, and overseen by the audit committee4. Many non audit services are prohibited from being performed contemporaneously with an audit5. Rotation of the lead (or coordinating) audit partner and the lead review partner every five years6. Auditors report to the audit committee7. Prohibiting where CEO or CFO previously employed by auditor8. Auditors’ attestation to and reporting on management assessment of internal controls9. Limitations on partner compensation10. Disclosure of fees paid to the auditor11. Requirements for preapproval of audit and permitted non audit services by the audit committee12. Retention of audit work papers and documents for five years13. Increased penalties for destruction of corporate audit records

Summary of the Provisions of SOX

Other 1. Professional responsibilities for attorneys appearing and practicing before the SEC2. Disclosures of corporate code of ethics3. Collection and administration of funds for victim investors4. Analyst conflicts of interest (Regulation AC)5. Whistleblower protection6. Debts nondischargeable in bankruptcy7. Temporary freeze authority for SEC8. SEC censure or bar of any person who is not qualified, lacks the requisite character or integrity, or with unethical conduct, from appearing before the SEC9. Lengthened statute of limitations for securities fraud10. Criminalization of corporate misconducts11. Criminal penalties for defrauding shareholders of public companies12. Retaliation against informants13. Increased criminal penalties under securities laws and mail and wire fraud14. Future studies on consolidation of public accounts by firm, audit firm rotation, accounting standards, credit rating agencies, and investment banks

Cost Benefit Of Sarbanes- Oxley

A 2007 survey of 2000 corporate executives reveals that:(1) The compliance costs of SOX for the second consecutive year declined substantially; (2) The cost dropped 23 percent in 2006; (3) Total compliance costs decreased to an average $2.9 million per company in 2006, which is down 35 percent from the $4.51 million average costs in 2006; (4) There was no significant change in audit fees; (5) The majority of surveyed executives (78 percent) reported that the costs to comply with section 404 still outweigh any benefits. More manageable and cost-effective Section 404 compliance is currently being addressed by the SEC and the PCAOB.

Training Competent and Ethical Accountants

There are several ways to ensure training competent and ethical graduating accountants and future business leaders of the accounting profession, such as:• Integrating corporate governance and ethics into the

accounting programs• Making internships an integral part of the accounting

education process

• Encouraging accounting students to obtain their professional certifications (CPA, CMA, CIA, CFE, CGFM)

• Ensuring that the professional exams adequately and effectively test standards, knowledge, skills, competency, and integrity

• Requiring the minimum number of CPE exams hours to obtain professional certifications and licenses

• Providing 150/hour accounting program to make accounting education comparable to the examination requirements in their professional schools (medical and law)

• Establishing separate schools of accountancy comparable to other professional schools (medical, law, dental) to enhance the prestige of accounting programs

• Establishing a strong, diversified advisory board to oversee and support accounting programs

• Promoting accounting professional organizations (Beta Gamma Sigma, Beta Alpha PSI, IMA, IIA, CFE students chapters)

• Promoting effective mastery of accountancy principles

• Adopting dynamic, market-driven accounting curriculum that continuously evolves in meeting the needs for training the most competent and ethical future accountancy and business leaders

• Strengthening the accountancy PhD program to ensure sufficient supply of quality accounting faculty

• Promoting diversity (gender, ethnic) in the accounting profession, including students, faculty, and practitioners

Good News and Bad News

1. Big 4 public accounting firms (Ernst and Young, Deloitte, PwC, and KPMG) have been ranked in the top five during the past three years by Business Week as “the best places to launch a career”.

2. Accounting enrollment is up at least 19% to over 203,000 students across all degree programs during the past 3 years (ASCPA, 2008).

3. Minorities comprise 26% of Bachelor’s enrollment:• 11% African American• 8% Asian• 6% Hispanic/Latino• 1% American Indian

4. At the Master’s level, enrollment is 20% minority:• 10% Asian• 5% African American• 5% Hispanic/Latino

5. The female-to-male enrollment ratio is 52% female, 48% male.

6. Public accounting firms remain the primary employer for new graduates. They hire 34% of BBA and 70% of MBA graduates.

Job Market Video (Video)

The Free Market Systemand Business

Chapter I

Chapter Objectives: • Learn the free market system and business.

• Understand the role and responsibility of business in society.

• Understand the primary goal of corporate governance.

• Recognize that effective corporate governance is established through

power sharing among all participants, particularly shareholders, boards of

directors, and management.

• Exemplify the importance of reliable and transparent financial information.

• Be aware of the effect of corporate governance on investor confidence.

• Present various definitions of corporate governance.

• Provide an overview of corporate governance reforms.

• Introduce business ethics.

• Provide an overview of costs and benefits of corporate governance reforms.

• Address the impacts of corporate governance reforms on accountability.

Key Terms Corporate accountability reportingCorporate cultureCorporate gatekeeperCorporate governanceEthical accountabilityFederal sentencing guidelinesGenerally Accepted Accounting Principles (GAAP)Listing standardsMultiple bottom lines (MBL)Public Company Accounting Oversight Board (PCAOB)Sarbanes-Oxley Act of 2002 (SOX)Securities Act of 1933Securities Exchange Act of 1934Securities and Exchange Commission (SEC)Social accountability

The Free Enterprise System and Capital Markets

The free enterprise system in the US is a bedrock principle of the US economy, and capital markets are the backbone of such systems.The free enterprise system has transformed from private ownership of businesses to dispersed public ownership.

Capital markets are driven by the capital provided to companies by investors.

Investor protection is essential and should be provided through appropriate regulations, effective corporate governance, and optimal market mechanisms.

The Free Enterprise System and Capital Markets (Cont.)

Investor confidence eroded at the turn of the 21st century due to:• High-profile financial scandals• Economic downturn• September 11 terrorist attacks• Ineffectiveness of market mechanisms• Investors’ demand of protection through regulation and transparency

Congress responded by passing the Sarbanes-Oxley Act of 2002, also known as SOX, to identify and manage conflicts of interest by improving corporate governance, financial reporting and audit activities.

Public Trust and Investor Confidence

Investor confidence is the key driver of the nation’s economic growth, prosperity, and financial stability.

More than 110 million Americans invest in capital markets.

US markets have a good reputation and are considered the most transparent, efficient, and reliable, as they:

- Facilitate efficient allocation of a scarce resource of capital- Enable public companies to raise capital for establishing/expanding their businesses- Provide a safe, lucrative marketplace for investing to fund retirement or pay for children’s education

The Role and Responsibility of Business in Society

The Role and Responsibility

Corporate stakeholders are classified into several layers andare categorized into three general tiers.

Eight layers of shareholders and stakeholders:

3 tiers of corporate

stakeholders:

The First Tier: Investors

The Second Tier: Creditors

The Third Tier: Others

The Role and Responsibility

The Role of Financial Information in the Capital

Markets o The sustainability of public companies is key to keeping investor confidence high.

o Financial disclosures under SEC regulations are necessary to provide investors with reliable information, so they can make informed decisions.

o Public companies in the United States are required to file their financial reports with the SEC, including audited annual financial statements on Form 10-K, reviewed quarterly financial statements on Form 10-Q, and extraordinary transactions on a current basis on Form 8-K (e.g., departure of directors, officers, auditors), in addition to proxy financialstatements submitted to investors.

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Corporate Reporting: Financial and nonfinancial

information

Financial Reporting:Financial statements and other financial

reports

Financial Statements Reporting:

Financial statements and related notes

Corporate Reporting

A corporate reporting model that captures both financial and nonfinancial key performance indicators is needed. Nonfinancial information disseminated to the capital markets by public companies includes:• Market information, such as market growth, market share, and

regulatory environment• Corporate governance information, such as the board of directors’

composition, structure, and committees• Strategic information, such as goals and objectives• Information about management, such as the track record,

compensation plans, and incentive plans• Value-creating information, such as customers, employees,

suppliers, innovative brands, and supply chain• Corporate responsibility information, such as environmental,

ethical, and social information• Forecasts, projections, and other technical and quantitative market

information

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Information from public companies flows into the marketplace from three fundamental sources:

• Regulated disclosures

• Voluntary disclosures

• Research analyst reports

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Regulated disclosures include filings with the SEC of annual audited financial statements on Form 10-K, quarterly reviewed financial reports on Form 10-Q, extraordinary transactions on a current basis on Form 8-K (e.g., auditor changes, resignation or death of a director or an officer, bankruptcy), and internal control reports for large public companies (Sections 302 and 404).

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Public companies often voluntarily release earnings guidance regarding projected performance and other financial and nonfinancial information in addition to their mandated disclosures.

Earnings announcements, even though not required, provide valuable information to market participants and motivate companies to meet their earnings expectations. Voluntarily released earnings guidance is expected to result in higher valuations, lower volatility, and improved liquidity.

The perceived benefits of issuing earnings guidance include:

• Satisfying requests from investors and analysts

• Maintaining a channel of communication with investors

• Intensifying management’s focus on achieving financial targets

• Moderating the volatility of the company’s share price

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The obsession with short-term results leads to the unintended consequences of destroying long-term value, decreasing market efficiency, reducing investment returns, and impeding efforts to strengthen corporate governance.

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Accountability: The New Business Imperative

Accountability is the cornerstone of corporate governance in continuously monitoring the best practices and being accountable to shareholders.

Although the primary focus and goal of accountability reporting in the foreseeable future will continue to be an economic issue to create sustainable long-term shareholdervalue, the issues of SEE performance of companies will gain momentum.

Entity Performance

Performance

Goals

Governance

Roles and Responsibilities

of CG Participants

Economic

Value creation and

Enhancement for all

Stakeholders

Reports

Assurance

CG Report

Assurance Report Audit Report

Financial Reports

Ethical

Ethical and Moral Values

Codes of Conduct

Assurance Report

Social

Social Issues regarding

Products and Services

Social Responsibility

Report

Assurance Report

Environmental

Environmental Audit Report

Environmental Management

and Report

Performance

Layers of Financial Statement Scrutiny

Introduction to Corporate Governance

Effective corporate governance can only be achieved when all participants: (1)add value to the company’s sustainable long-term

performance; (2)effectively carry out their fiduciary duty and professional

responsibilities;(3)are held accountable and personally responsible for their

performance; (4) develop a practice of not only complying with applicable

regulations, but also committing to doing the right thing and observing ethical principles of professional conduct in avoiding potential conflicts of interest.

Introduction to Corporate Governance

Corporate Culture and Integrity The compliance culture can be promoted through the establishment of a centralized CCO who is primarily responsible for ensuring compliance with all applicable laws, regulations, rules, standards, codes of ethics, policies, and procedures, and oversees all compliance functions.

Corporate AccountabilityThe multiple bottom lines (MBL) objectives of economic, social, ethical, and environmental (ESEE) performance have been advocated by global business and investment communities. The perceived benefits of reporting both financial and nonfinancial key performance indicators (KPIs) are improved quality of information; enhanced communications with analysts and investors; and integration of the organization’s operating, financial, and social performance.

Introduction to Business Ethics Ethics: “a set of moral principles: a theory or system of moral values”

Corporate governance should create an ethical business environment in which all employees are encouraged and empowered to “do the right thing”.

An important aspect of the emerging trend toward increased corporate accountability and governance is reflected in the role and relevance of business ethics and codes of professional conduct.

Overriding Causes of the Financial Crisis1. Ineffective Regulations

• Gramm-Leach-Bliley (GLB)/Financial Modernization Act of 1999.• Federal Housing Enterprise Financial Safety and Soundness Act

of 1992 (FHEFSSA) required the Department of Housing and Urban Development (HUD) to create Fannie Mae and Freddie Mac to purchase mortgages used to finance “affordable housing,” which triggered a government-mandated market for subprime mortgages.

• Federal Housing Enterprise Regulatory Reform Act of 2005 entailed operating, administrative, and regulatory provisions for Fannie Mae and Freddie Mac, including assessment authority; authority to limit non mission-related assets; minimum and critical capital levels; risk-based capital test; capital classifications and undercapitalized enterprises; enforcement actions and penalties; golden parachutes; and reporting.

VIDEO (Video)

Other Overriding Causes of the Financial Crisis

→ Greedy and incompetent executives

→ Subprime mortgage crisis→ Falling asset pricing,

including houses→ Highly leveraged financials→ Inactive credit markets→ Credit-driven rather than

equity-driven markets

• http://www.youtube.com/watch?v=Q0zEXdDO5JU ,Video

→ Government policies promoting home ownership

→ Securitization of mortgage-backed assets

→ Inadequate risk assessment of business transactions

→ Lack of transparency of public financial information

→ Failure of accounting standards to properly measure fair value of financial instruments

Overriding Effects of Financial Crisis 1. Results in a global crisis that will take time2. Encourages regulatory reforms3. Creates significant risk to GDP growth4. Causes a global economic meltdown5. Increases likelihood of bankruptcy6. Causes unemployment

7. 8. http://www.youtube.com/watch?v=SwRFoxgEcHc&feature=relat

ed (Video)

The government gave them 105% for their $200,000 subprime mortgage.

 They then sold the house for $37,000, got married, and are escaping from California.

Remedies for Financial Crisis 1. Clear your balance sheet from bad assets.2. Assess risk(s).3. Reduce debt.4. Focus on cost re-engineering and cost-efficiency.5. Improve quality.6. Use a zero-based budgeting approach.7. Focus on cash-flow, as cash is king.8. Do not spend more than what you can afford.

Suggestions for Global Economy1. Understand the global nature of business markets and our

economy.2. There is an urgent need for convergence in corporate

governance reform, including regulations.3. Make regulatory reforms globally enforceable.4. Continue support for more global regulation and less support

for deregulations.5. Support the move towards international financial reporting

standards (IFRS).6. Change the corporate culture and board structure.

Video ( VIDEO)

Suggested Government Assistance 1) The $150 billion excessive granted bonuses should be paid back in

accordance with Section 304 of the Sarbanes-Oxley Act of 2002 (SOX) titled “Forfeiture of Certain Bonuses and Profits”.

2) $250 billion should be raised through a “private bailout” by companies and individuals who have been blessed by economic prosperity in the post-SOX.

3) $300 billion public bailout by government under the certain conditions of:a) Changing the “voluntary regulators” regime for financial firms and investment

banks to “the SEC mandatory regulation”b) Proper regulation for “executive compensation” of financial firms and

investment banksc) Limited borrowing by investment banks and their holding companies in funding

their risky investment decisionsd) Tax payer protections for the return of the $300 billion public bailout to the

treasury department e) More effective oversight of financial firms and investment banks by regulatorsf) Better transparency of financial performance of financial firms and banksg) More effective corporate governance measures for those institutions.

Ineffective bailout of Troubled Asset Relief Program (TARP)

• Paulson Treasury Department bought equity stakes in troubled banks and hoped they would make more loans with more capitals on hands

• Bailout money used to extend the credit• Keynesian fiscal policy, lower tax, increased

government spending or both • Unsound risk management practices• Increasingly complex financial products• Excessive leverage

Corporate Governance Reforms for Banks and Financial Institutions

1. The US Treasury plans to invest $125 billion in the nine largest banks and establish corporate governance and executive compensation standards for those banks.

2. The board reviews executive compensation to ensure that management is not taking too many risks.

3. The committee will meet with the bank’s chief risk officers at least annually to check the link between risk management and executive pay.

4. The Treasury will not replace any directors on the banks’ boards. (The UK government does.)

5. Banks cannot deduct executive compensation above $500,000 against taxes.

Actions Taken

• Stimulate the economy• Provide liquidity• Strengthen the capital of financial institutions• Address regulatory deficiencies• Increase credit markets• Stabilize financial markets and support

economic growth

Reforms • Strengthen transparency of financial markets through

enhanced disclosure of complex financial products • Improve accountability by ensuring proper risk

assessment• Enhance sound, cost-effective, efficient and scalable

regulations by ensuring all financial markets, products, and participants are regulated or subject to effective oversight (example: regulatory oversight over credit rating agencies, mutual funds)

• Promote integrity in financial markets to protect investors, avoid conflicts of interest, prevent illegal market manipulations, and prevent fraudulent activities and abuse

• Convergence in international regulations and related enforcements

Suggestions • Global financial crisis demands a robust, effective, and forceful move

towards global corporate governance, including regulations.• Outdated banking regulations, limited international regulatory

coordination and inadequate regulations of financial markets should be addressed globally.

• Global regulations should prevent irresponsible and excessive risk, as well as fraudulent behavior and outrageous executive compensations without blocking growth.

• Convergence in regulatory frameworks and standards to enhance compatibility and transparency of financial information, promote investor confidence and reduce compliance costs for global companies

• Continuous increase in state ownership of financial institutions• Establish stricter capital requirements (leverage ratio) for banks

worldwide and decrease flexibility in how bank reserves are calculated.

• Provide full transparency for financial statements (no off-balance sheet transactions or accounts). Full disclosure of all financial instruments in order to assess their risks and soundness.

Why do we need corporate governance standards and regulations?

• U.S. securities law was established almost 75 years ago to restore investors’ confidence, and it was government response to the perception that investors ( a small group of wealthy investors) had been defrauded because of an offer of bad securities.

• Today, we face the similar problem of erosion of investors' confidence and public trust and general perception of a large group of investors (110 million Americans) have been defrauded by the executives of public companies who are not accountable to anyone

• Corporate governance reforms should create an environment in which public companies can operate in creating shareholders’ value, protecting the interests of other stakeholders and rebuilding investors’ trust through effective enforcement of these reforms.

• Regulations must be cost-effective, efficient and scalable.• New corporate governance reforms should:

a. Address the systematic risk of all business transactions and particularly the risk of business failures and potential insolvency

b. Protect interests of all stakeholders (investors, government, customers, creditors, suppliers, employees, society)

c. Promote accountability for businesses and their directors and officers

d. Encourage convergence and global cooperation and coordination

Conclusion • The primary goal of corporate governance is to create a right balance of power sharing among all participants. • The investment community is requiring companies to earn back public trust; therefore, the roles of individuals involved in corporate financial reporting have become a value-added function under intense scrutiny.• Reliable and transparent financial information contributes to the efficient function of the capital markets and economic growth.• Corporate government reforms require four key corporate gatekeepers: an independent and competent board, an independent and competent auditor, objective and competent legal counsel, and objective and competent financial advisors.• Corporate governance, for the purpose of this book, is defined as the process affected by a set of legislative, regulatory, and legal market mechanisms; listing standards; best practices; and efforts of all corporate governance participants, which creates a system of checks and balances

with the goal of creating and enhancing sustainable value for shareholders while protecting the interests of other stakeholders.

Conclusion • Market-based mechanisms alone cannot solve corporate governance problems, because they are often initiated and enforced after the occurrences of management abuse and after shareholders sell their shares, which depresses the price.• Corporate governance reforms are intended to improve the vigilance and effectiveness of corporate governance. • The net benefit of corporate governance reforms is expected to aid in improving investor confidence and public trust in corporate America. • Corporations should set an appropriate “tone at the top” to effectively integrate a culture of ethics and compliance.• Global initiatives have extended corporations’ accountability, not only to their investors, but also to all stakeholders, on a variety of issues from economic measures to governance, ethical, social, and environmental performance. Therefore, corporations are focusing on MBL objectives of ESEE performance.