Company Law and Corporate Governance
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"The knock on effect of Enron on European Initiatives in the area of Corporate Governance has been immeasurable and promises to revitalise the whole of the company law harmonisation agenda" Discuss Background and Introduction "Company Law and Corporate Governance are right at the heart of the political agenda, on both sides of the Atlantic"1. The extent of Enron's ruin was enormous, being the largest American company ever to file for bankruptcy2. Justifiably the tragedy sparked an enormous United States Senate Investigation and it was shown that directors of Enron intentionally ignored high risk accounting procedures that led to the energy company's collapse3. After the Enron misfortune, few people doubted the need to re-examine corporate governance globally. Corporate Governance is a contentious issue for lawyers, accountants, politicians and businesses alike4 and in the last decade corporate governance has been a priority on the agenda of several governments and has been firmly under the spotlight. Corporate scandals such as Enron have exposed companies' susceptibility to mismanagement, conflicts of interest and corruption5. As a result, corporate governance has moved up from being a mere exercise to becoming a considerable concern for companies. Corporate Governance is an incredibly extensive area of Company Law, and so for this reason it would be impractical to review its entire reach. This paper proposes to give an outline of how and when the issue of corporate governance has risen up the political agenda for the European Union and the United Kingdom Government. The Author will be particularly concentrating on post-Enron developments and the path towards harmonisation of corporate governance in the European Union. Corporate Governance: Its Definition and Role in Company Law There is no universal definition of corporate governance6 but we may distinguish between formal definitions of corporate governance and why it is needed in an economic sense for listed companies7. A company is a collection of assets that fall under the control of its managers.
Bibliography Recommended Text * Hannigan, B. (latest edition) Company Law, Lexis Nexis, Butterworths * Pettet, B. (2001) Company Law, Longman Law Series * French, D. (2003-2004) Blackstone's Statutes on Company Law, Seventh Edition, Oxford University Press Other Books and Sources: * Monks, R and Minnow, N (latest edition) Corporate Governance, Blackwell Publishing * Barca, F. and Becht, M, (2002) The Control of Corporate Europe, Oxford University Press * Cadbury, A. (1992) Report on the Committee on the Financial Aspects of Corporate Governance, Gee & Company Limited * Higgs, D. (2003) Review of the Role and Effectiveness of Non-Executive Directors, Department of Trade and Industry, London * Mallin, C. (2003) Corporate Governance, Oxford University Press * OECD (1999) Principles of Corporate Governance, OECD Paris * Williamson, O. E. (1996) The Mechanisms of Governance, Oxford University Press * Smith, D. (1999) Company Law, Butterworth Heinmann Press * Lowry, J. and Watson, L. (latest edition) Company Law, Butterworth's Core Text * Erhard, L. (2004) Lectures 2004, Chapter 2: The origins of International Harmonisation * Macalister, T. and Treanor, J. The Guardian Newspaper, Tuesday December 4, 2001 'Enron crash hits markets' * The Financial Times, 12 March 2003 'Higgs' * The Financial Times, 24 April 2003 'Higgs Breach' * The Telegraph Newspaper, 12 March 2003 'Needing Non-Executive Directors' * European Commission Communication, Modernising Company Law and Enhancing Corporate Governance in the European Union- A Plan to Move Forward, Com (2003) 284 final of 21 May 2003 * Bone, S. Osborn's Concise Law Dictionary, Ninth Edition * Black, J. (2001) Proceduralising Regulation - Part 1 * Sarbanes-Oxley Act (2002) 13 PLC 6-9 * Hill and Jones (2002) Corporate Governance * Dorey (2000) Corporate Governance Journals * Journal of Financial Regulation and Compliance, Volume 11, Number 4 Dewing, I. and Russell, P. 'Post Enron developments in the UK audit and corporate governance regulation'. * Business Law Review, Volume 24, Number 10 Reid, A. S. 'The Internationalisation of Corporate Governance Codes of Conduct' * Ebert, S. European Business Law Review (2003)
66 Op cit, n 10, at p 91 "Despite the differences in corporate governance systems, there seems to exist a trend towards convergence. This convergence is not only occurring in developed economies, which are adopting corporate governance mechanisms as they develop their institutions, as well as in developing economies, which face pressure form international donors for more transparent governance systems. This trend toward convergence does not imply a movement towards a single model of corporate governance, but a transition towards common guiding principles of information, transparency and accountability. Variation in national contexts, especially in terms of legislation, institutions, the development of capital markets, concentration of ownership and separation of ownership and control, will sustain differences in corporate governance and control systems." 67 ECOFIN Oviedo 2002 "Enron's collapse has increased awareness that proper Corporate Governance is essential to the efficient functioning of capital markets and high quality financial reporting." 68 Company Law Action Plan 2003 "There is little indication that the development of a European corporate governance code as an additional layer between principles developed at the international level and codes adopted at national level would offer significant added value." 69 Hill and Jones 2002 "Groups of constituents who have a legitimate claim on the firm, based on an exchange relationship and which includes stockholders, creditors, managers, employees, customers, suppliers, local communities and the general public" 70 Dorey 2000 "Codification has been a rather toothless exercise, and that the shareholder is still dependent on Trust, that the Directors have given a fair and true value in their communication and reports" 71 www.mori.com Article: The Business World Will Never Be The Same: The Contribution Of Research To Corporate Governance Post-Enron, 16th December 2003 Higgs commented in his interview with MORI that "You can't absolutely prevent something like Enron or WorldCom happening if the people in that company are determined to do that" 72 Changes in the USA have so far included the introduction of the Sarbanes-Oxley Act and the accounting regulator, the Public Company Accounting Oversight Board. Company boards have increased the number of independent directors and audit committees are more carefully monitoring auditors 1
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