How global is good corporate governance?
executive directors and pensiontrustees was also questioned althoughthe Serious Fraud Office brought nocharges against them.The Maxwell scandal has beendescribed as the greatest fraud of the20th Century, forcing the issue of corporate governance firmly into thepublic, business and political arena.
The name Enron is now synonymouswith corporate scandal. Previouslyranked in the US’ Fortune Top 10companies based on turnover, it endedits days as one of the largestbankruptcies in US history and wasinstrumental in the collapse of Anderson, one of the “big five” globalaccounting firms.Enron, operating in the energy market,set up a series of ‘special purposeentities’ (SPEs) or off-balance sheetentities to enhance its earnings andconceal its debts from the market
.Subsequent investigation focused onthe role of the auditor and, in this case,their apparent failure to ask sufficientlyprobing questions of the directors. Italso highlighted the need for directorsto act with honesty and integrity andthe need for non-executive directorswith sufficient experience to overseethe decisions of executive directors.In the aftermath of this scandal, the USgovernment was quick to implementcorporate governance reforms togetherwith revisions of the New York StockExchange’s (NYSE) listingrequirements. Most notably, companiesare now required to have an auditcommittee wholly comprised of independent directors and to publish acode of ethics for senior financialofficers.
So soon after the Enron scandal manyassumed that no similar financialcollapse could take place in Europe.However Parmalat, one of Italy’slargest publicly quoted companies, wasdeclared insolvent in December 2003.The scandal was similar to Enron in thatthe auditors apparently failed to pick upon fraud
. Forged documents showedcash holdings at a subsidiary, Bonalat,which simply did not exist.This scandal again highlighted the roleof the auditor and need for an effectivewhistle-blowing system. Aninvestigation found that while a numberof employees suspected wrong-doing,no-one came forward.The company’s board and ownershipstructure also raised questions overcorporate governance best practice.While publicly quoted, the companywas still 51% owned by the Parmabased family of its founder CalistoTanzi. Further, Tanzi held the role of both Chairman and CEO and the boardwas far from independent, comprising anumber of family members.
The development of codesaround the world
Against the backdrop of corporatescandals and fraudulent accountingpractices, governments and regulatorshave sought to introduce strongerlegislation and regulation to guardagainst similar collapses in the futureand restore investor confidence infinancial markets. In some countrieslegislation and codes addressingcorporate governance have been inexistence for decades, in othersgovernments are just embarking on thedevelopment of such codes. Below aresome of the key legislativedevelopments that form the corporategovernance landscape in their