Developments In The United States Pertaining To Corporate Governance

By Haider Ali

Posted: 22nd August 2012 10:50

Corporate governance in the United States has long been a contentious issue ever since the 1970s when strictures became less and less fervent in order to accommodate the desires and wants of corporations.. 
 
Since then those left of the political spectrum have called for tighter regulations to help scrutinise the markets in which corporate governance has become somewhat lax.  Those on the right however have maintained that any strictures placed on corporations have been having a stark affect on corporations for decades, preventing them from reaching their true market potential that would in turn benefit the United States GDP. 
 
Though the picture they paint is beyond bleak and somewhat catastrophic, more scrutiny on corporate governance will lead to corporations taking their business elsewhere and investing in rival countries.  To a certain degree they have a point as India and China are reaping the benefits of the current state of regulations in the United States which is closing loopholes in which corporations have exploited for decades.
 
But with the American left, comprised of unions, students and blue collar workers demanding far more critique of corporate governance and the American right consisting of tea-party members and fiscal conservatives; the current United States administration is caught in a catch -22 situation.  In trying to appease the core premises in which Barack Obama was elected on he must follow through with his policy of higher taxes on the upper echelons of earners and corporations.  Instead he has continued with his policies of the previous administration under George Bush, thus negating his base support by following through with the Bush more cuts on corporations, despite them taking their business elsewhere around the world.
 
Though he has failed with this miserably, he is also being attacked on another front and that is on the lack of jobs, which is down to of course manufacturing jobs being taken elsewhere.  Developments in the United States in regards to corporate governance has not improved and isn’t likely to with no concrete policy in sight.  But analysing them a little more thoroughly will help us visualise through the myriad of confusion what developments pertaining to corporate governance in 2012 has occurred and how they will affect us.
 
The ultimate goal of recent developments regarding corporate governance in the United States is to place more emphasis on transparency.  Investors are seeking greater corporate accountability and this extends beyond the remit of balanced sheets that are disclosed at the end of each fiscal year.  Minutes recorded at board room level, executive pay increases and bonus disclosures are all vital pieces of information that are being pressed for exposure.
 
To stifle crimes committed at the top, just over 10 years ago the Sarbanes-Oxley Act was signed into law by George Bush.  The jailing of corporate executives and one of the largest companies in the US going out of business was meant to act as a deterrent.  On the contrary it seems that corporate governance became even less stringent as some corporations carried on unabated. 
 
The Dodd-Frank Act of two years ago had also become law a few years ago after the last great crisis and it has had some affect on corporate governance, some will argue to the detriment of corporations and others will argue it has had its benefits.  The purpose of this was to deter regulators; the very people who help keep a watchful over corporations, from colluding with public companies. 
 
Despite the news of banking scandals recently, proponents continue to argue that the Dodd-Frank act has done a great job within the financial sector.  Detractors though think that the piece of legislation is vehemently attacking capitalist fundamentals that have helped make corporations so competitive and the driving force of the United States.  By stifling the chance for corporations to expand, reap profits and create more jobs through aggressive investment, an extreme assertion that many are starting to agree with, is that the United States as a whole is decaying economically as strict regulation surrounding corporate governance is driving them away.
 
Trends do not just stop at greater transparency and tighter governance control on corporations.  Another interesting development regarding corporate governance in the United States has been more voting practices being introduced to give smaller investors more of a say in how companies can be run.  This is seeing to boardroom power diminish and a more equilateral power-sharing framework commence.  
 
Whether or not these recent developments surrounding corporate governance in the United States help to improve a decaying economy remains to be seen.  However one thing is for certain, the tighter regulation gets surrounding corporate governance; the more likely it is companies will be thinking of taking their business elsewhere around the world.


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