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Abstract
Corporate governance consists of a set of internal procedures, laws, and informal guidelines that govern how corporate officials make decisions and who bears responsibilityforharms,losses,orinjuriesthatflowfromsuchdecisions(Iksander and Chamlou 2000; Monks and Minow 2004; Thomsen 2008). The objective of the system is to ensure that corporate decisions are made with the best interests of the corporation and its stakeholders in mind and that corporate officials speak truthfully when communicating with investors and the public (Sale 2004). The principal challenge for corporate governance is to create a system that holdsdecisionmakersaccountablewhileaccordingproperrespecttotheirauthority over the corporation. The standard accountability mechanisms are the market, shareholder voting, and civil and criminal liability. In theory, these mechanisms work together to create incentives for responsible decision making and to deter self-dealing or other forms of misconduct. In reality, however, each of these accountability mechanisms contains flaws that allow corporate officials to sometimes exercise an unreasonable degree of discretion when making decisions that affect the fortunes of so many. When governance systems fail, the impact can be devastatingforinvestors,employees,andtheeconomy.Recentcorporatescandals andthenear-collapseoftheglobalfinancialsystemalldemonstratetheimportance of maintaining an effective corporate governance regime. Thischapterbeginswithadescriptionoftheprincipalsourcesofcorporategovernance standards. It then provides a detailed examination of federal oversight of financialreporting,andidentifiessignificantproblemswithintheoversightsystem. Next,itdescribesprospectivecorporategovernancereformsproposedinresponse to the 2008 financial crisis. The final section offers summaries and conclusions.
