How and why do you think that corporate governance and the principles of transparency have moved up the public agenda?

Essay by vinitvins July 2004

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Corporate governance gained immense importance subsequent to the Asian financial crisis in mid-1997. Companies that used existing resources in an inefficient way and did not conform to international corporate management standards helped magnify the effects of the crisis in those countries. Corporate transparency and accountability are so critical for overall economic performance that they have begun to be the accepted norm throughout the world since the Asian crisis. The recent spate of US corporate failures and breakdowns in truthful accounting has undermined people's faith in financial reporting, corporate leadership, and the integrity of markets the world over. These events have their roots in the heady days of stock market exuberance, when anything was possible, from creating multibillion dollar companies with little more than an idea, an investment angel and a lot of faith, to believing that markets would buy any yarn a group of fast-talking executives could spin, even if to cover up serious losses and illegal practices.

The corporate scandals were the outcome of illicit management decisions and cover-ups. In the cases of corporate misbehavior, the public, employees and pensioners were deliberately misled. They have now lost many billions of dollars, and in some cases their life savings, while some insiders benefited. Some private pension funds, for instance, have recently been informing their pensioners of the prospect of reduced payments, due to falling stocks. If market risk and cycles were the only cause behind these announcements, that would be fine. The stakeholder public would probably live with that, and anyway, the market provides other instruments for customers to invest in, like property or long-term bonds. But to the extent that the market's fall can be traced to scandals and breaches of trust, public support wanes and the market becomes unworkable. The state's reputation is also at stake. This underscores...