News from Cass Business School

Keeping better company

Professor Rob Melville explains why good corporate governance is so important

Wednesday, 13 October, 2010

Throughout history major financial crises have been preceded by significant lapses in corporate governance, the scandals involving Enron, Tyco and WorldCom were a forewarning for the recent economic turmoil. In all of these cases there were significant conflicts on interests between supposedly independent members of the audit committees and the governing board.
The collapse of Enron brought about a great deal of soul searching amongst the business community and as the reasons behind the scandal came to light a series of pledges were made that big business would change the way they conduct their affairs. According to Professor Rob Melville, in this week's Cass Talks, the action taken, such as the Sarbanes-Oxley Act of 2002, not only came years too late but were also too retrospective.
Professor Melville believes that shareholders should look beyond simply their dividends and make sure that their board is adhering to what he calls the three golden rules of corporate governance’:
1.  Never combine the roles of Chairman and the Chief 
  Executive; to avoid concentration of power.
2.  Strong, effective and independent Non-executive directors
3.  A strong and rigorous audit committee
The primary enforcers of these rules, argues Professor Melville, need to be the large institutional shareholders who should also become more active in making sure the organisations they invest in comply with the golden rules. Without the involvement and pressure of powerful vested interests we will be very likely to see more corporate collapses in the near future.
The Cass Talks interviews are an opportunity to hear Cass faculty and prominent alumni give their perspective on current business and finance news stories, global issues affecting the business world and new research coming out of the School. Listen, watch and download Cass Talks and see other Cass academics share their opinions atwww.cass.city.ac.uk/casstalks

Permanent link to this story: https://www.cass.city.ac.uk/news/2010/october/keeping-better-company
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