Corporate Governance and Ethics Leadership

Corporate Governance and Ethics Leadership

Corporate Governance and Ethics Leadership

Miguel Vargas, Spencer Sutcliffe, Tara Farinholt, Jeremy Gillespie

Management 356 Sec. 3

December 8, 2005

What is corporate governance? "Corporate governance is the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. It also provides the structure through which the company objectives are set and the means of attaining those objectives and monitoring performance." (Principles of Corporate Governance p. 3-7). Basically put, corporate governance refers to how a corporation is governed. It examines who has the authority to make decisions for the corporation within established guidelines. The United States has the best corporate governance, financial reporting, and securities markets systems in the world (Karen, Fred). These systems work because of the adoption of best practices by public companies within a framework of laws and regulations. While there have been exceptions (Enron, Tyco) to the overall record of success generally the systems have worked very well. In the United States the governance of corporations is largely determined by the state and its laws of incorporation (Useem, Michael). These laws provide that each corporation must be managed by or given direction by its boards of directors. More specifically, corporate boards of directors are responsible for certain decisions on behalf of the corporation (Shleifer, T. and Vishny). At a minimum, as stated in most state statutes of incorporation, director approval is usually required for amending corporation bylaws, issuing shares, or declaring dividends. Also, the board alone can recommend that...