Mcbride: Transparency in Corporate Governance
McBride Transparency in Corporate Governance
MMPBL/570
May 7, 2012
Thomas Kershaw
McBride: Transparency In Corporate Governance Many recent corporate governance scandals have caused government to implement a number or regulatory modifications. One factor in relation to these changes is improved disclosure requirements. An example, Sarbanes-Oxley (SOX), created because of Enron, WorldCom, and additional public governance malfunctions, with detailed reporting of off-balance sheet financing and extraordinary use entities. Furthermore, SOX amplified the punishment to executives for misrepresenting. The association between governance and transparency is clear in the community’s discernment; transparency was amplified for the purpose of improving governance. The most common benefit of transparency is the reduction of asymmetric information, and therefore lowers the cost of trading the firm’s securities and the firm’s cost of assets. To counteract this benefit, reviewers typically spotlight the direct costs of disclosure, as well as the competitive costs arising because the disclosure provides potentially useful information to product-market rivals. The main concern is the affiliation between the chief executive officer (CEO) and the firm’s owners (alternatively, between the CEO and the directors acting on behalf of the owners). “Nowhere has this been more true than in the case of Enron. The evidence suggests that Enron’s board and audit committee were aware of numerous red flags, including concerns about Enron’s accounting policies; yet they approved the adoption of the firm’s financials year after year” (Chew & Gillan, 2005, p. 136). McBride must develop an understanding of transparency in corporate governance and ensure this format is used within the corporate governance framework. Hugh has to analyze the result that disclosure has on the contractual and scrutinizing involvement between the board and his role as chief executive
MMPBL/570
May 7, 2012
Thomas Kershaw
McBride: Transparency In Corporate Governance Many recent corporate governance scandals have caused government to implement a number or regulatory modifications. One factor in relation to these changes is improved disclosure requirements. An example, Sarbanes-Oxley (SOX), created because of Enron, WorldCom, and additional public governance malfunctions, with detailed reporting of off-balance sheet financing and extraordinary use entities. Furthermore, SOX amplified the punishment to executives for misrepresenting. The association between governance and transparency is clear in the community’s discernment; transparency was amplified for the purpose of improving governance. The most common benefit of transparency is the reduction of asymmetric information, and therefore lowers the cost of trading the firm’s securities and the firm’s cost of assets. To counteract this benefit, reviewers typically spotlight the direct costs of disclosure, as well as the competitive costs arising because the disclosure provides potentially useful information to product-market rivals. The main concern is the affiliation between the chief executive officer (CEO) and the firm’s owners (alternatively, between the CEO and the directors acting on behalf of the owners). “Nowhere has this been more true than in the case of Enron. The evidence suggests that Enron’s board and audit committee were aware of numerous red flags, including concerns about Enron’s accounting policies; yet they approved the adoption of the firm’s financials year after year” (Chew & Gillan, 2005, p. 136). McBride must develop an understanding of transparency in corporate governance and ensure this format is used within the corporate governance framework. Hugh has to analyze the result that disclosure has on the contractual and scrutinizing involvement between the board and his role as chief executive
References: Bushman, R. M. & Smith, A. J. (2003). Transparency, Financial Accounting Information, and Corporate Governance. Retrieved May 6, 2012, from http://www.ny.frb.org/research/epr/03v09n1/0304bush.pdf Chew, D. H., & Gillian, S. L. (2005). Corporate governance at the crossroads: A Book of readings. Boston, MA: McGraw-Hill. Goessl, L. (2010). How Transparency Helps Make IT Governance More effective. Retrieved May 3, 2012, from http://www.helium.com/items/1614755-how-transparency-helps-make-it-governance-more-effective McCarthy, M. P., Flynn, T. P., & Brownstein, R. (2004). Risk from the CEO and board perspective. New York: McGraw-Hill. McCoy, T., Martin, K., & Diamond, S. F. (2010). Corporate Governance. Retrieved May 4, 2012, from http://www.scu.edu/ethics/practicing/focusareas/business/conference/presentations/corporate-governance-panel.html University of Phoenix, (2012). McBride Scenario. Retrieved May 7, 2012