CYCLES OF CRISIS AND REGULATION
Introduction: cycles of governance
The disaster that befell corporate Americain 2001/2002 involving a prolonged seriesof revelations of malfeasance relating to what
previously were regarded as leading corporations,resulted in thedramatic interventionof the US Congress and the passing of theSarbanes-Oxley Act. Government, regulators,professions, institutional investors, individual
shareholders, employees and the wider communitystruggled to comprehend the implicationsof what had occurred, which appeared toseriously undermine confidence in the securityof equity investments, the probity of USexecutives, and even the fundamentals ofmarket-based capitalism. For others there wassomething of a sense of déjà vu – the historical
development of corporate capitalism has beenpunctuated by periodic crises and it is at thesepoints of critical inflexion that minds are concentratedon the need for regulation.Corporate governance crisis and reform isessentially cyclical. Waves of corporate governance
reform and increased regulation occurduring periods of recession, corporate collapseand re-examination of the viability of regulatory
systems. During long periods of expansion,active interest in the conformance aspectsof governance diminishes, as companies and
shareholders become again more concernedwith the generation of wealth, rather thanin ensuring governance mechanisms areworking appropriately for the retention of© Blackwell Publishing Ltd 2004. 9600 Garsington Road, Oxford,OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.Cycles of Crisis and Regulation:the enduring agency and stewardshipproblems of corporate governanceThomas Clarke*
Corporate governance crisis and reform is essentially cyclical. Waves of corporate governancereform and increased regulation occur during periods of recession, corporate collapse and reexaminationof the viability of regulatory systems. During long periods of expansion, activeinterest in the conformance aspects of governance diminishes, as companies and shareholdersbecome again more concerned with the generation of wealth, rather than in ensuring governancemechanisms are working appropriately for the retention of wealth, and its use foragreed purposes. This cyclical historical saga revolves around the enduring agency and stewardshipdilemmas of governance. Complacency concerning corporate governance during confidenttimes compounds ensuing crises. Such dilemmas are universal in market systems,though internationally with different systems of corporate governance the unwinding of thissaga has occurred at different times, for different reasons, and with different consequences.Corporate governance is about wealth generation and risk management, and these dutiesrequire continuous and simultaneous performance. Avoiding mandatory restrictive overregulationrequires active market regulation, particularly at times of expansion. The drive tomake corporate governance both improv
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