Corporate Governance Regulation
Corporate governance - the administration, internal oversight, and executive actions of a corporation - has become a major regulatory issue. In the wake of accounting scandals at companies such as Enron, Tyco, and WorldCom, the U.S. Congress in 2002 passed the Public Company Accounting Reform and Investor Protection Act of 2002 (Sarbanes-Oxley Act).
The financial crisis of 2007-08 highlighted lax risk management, oversight, and accounting standards among financial entities. These problems have been blamed for the near-collapse of the financial system.
Regulatory bodies in the U.S., Europe, and Asia have all begun to implement changes in corporate governance of financial entities.
- In the U.S., the Dodd-Frank Act mandated that the CFTC and SEC create and implement rules on corporate governance.
- In 2011, the European Union created the European Securities and Markets Authority (ESMA) to coordinate regulations across the eurozone. Since then, the commission has issued several Green papers and guidance on governance
- In January 2010, the U.K. Financial Services Authority (FSA) issued a consultation paper on corporate governance. In June 2010, the the U.K. government announced it would be reorganizing the country's bank-regulatory system, including the splitting of the FSA into three new agencies. Establishing governance standards remains a top priority.
Corporate Governance and the Dodd-Frank Act
The Dodd-Frank Act is intended to reform the U.S. financial sector, curtail or mitigate systemic risks, and avoid a repeat of the financial crisis of 2007-08. Among its provisions are several mandates addressing corporate governance, including:
- Final Rules Business Conduct Standards of swap entities, including swap dealers, major swap participants and futures commission merchants
- Final Rule Duties of swap dealers and major swap participants
- Final Rules Internal business conduct standards, conflicts of interest, and rules covering a financial entity's chief compliance officer
- Broker-dealer reporting
- Executive compensation rules:
- Final Rule: Shareholder approval of executive compensation and golden parachutes
- Final Rule: Incentive-based compensation arrangements
- Final Rule: Listing standards for compensation committees
- Proposed Rule: Disclosure of Hedging by Employees, Officers, and Directors
- Final Rule: Proxy access
- Final Rule: Conflict minerals
- Final Rule: Mine safety disclosure
- Final Rule: Payments by resource extraction issuers**
- The Resource Extraction Final Rule was vacated by court order in July 2013 and was reproposed in December 2015. View the December 2015 proposal HERE.
- Sarbanes-Oxley Act of 2002. SEC. Retrieved on August 18, 2011.
- The Corporate Governance Lessons from the Financial Crisis. OECD. Retrieved on August 18, 2011.
- U.K. Shakes Up Bank Regulation. The Wall Street Journal. Retrieved on March 30, 2011.