Now let'sreally reform governance

Abstract

Corporate governance reform has become a growth industry around the world. In most countries, new expectations about transparency, conflicts of interest, and composition have taken the voluntary form of “conform or explain.” In the United States, reforms came in the more authoritative form of legislation the Sarbanes-Oxley Act of 2002 (SOX), sponsored by Senator Paul S. Sarbanes and Congressman Michael G. Oxley. The law was passed in response to various recent corporate debacles. It is not the first such reform, nor will it be the last, although due to its legal force it is the most conspicuous in recent history. Although SOX applies to listed companies, many boards of nonprofit organizations and units of local government mistakenly thinking SOX is the last word in good governance have tried to apply its provisions to their own situations voluntarily. In fact, SOX does improve many widespread corporate practices, but it is not a complete gover nance system and in fact does nothing to address the nature of corporate governance itself. In other words, SOX, along with less legalistic reforms around the world, provides some useful patches for the primitive state of corporate governance but leaves it only in a newly patched condition. The following article originally appeared in Directors Monthly.