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Corporate Governance

Essay by   •  March 10, 2012  •  Essay  •  505 Words (3 Pages)  •  1,202 Views

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In the recent years, the public and business community have been exposed to many corporate scandals and accounting fraud by the managers of the company. In 1997, the financial crisis brought huge damages and requires many efforts done in order to strengthen the business control and foundation of the companies. One of the important lessons learnt from the financial crisis in 1991 is the weaknesses in the governance of the company such as too much power is given to a single person managing the company, weak internal control and poor coordination of directors that lead to failure of the company. Due to these problems, a total regulatory and governance were embarked all over the world. For example, The Sarbanes Oxley Act was established in the US while in the UK, The Code of Corporate Governance was extensively revised as an objective to stop all these corporate scandals from spreading towards the global business community.

Many developed and developing countries across the world is unable to run away from a number of corporate scandals. One of the most significant corporate collapses includes Enron, which is known as the world's leading company in the past. The Enron scandal brought a huge damage towards the world's financial sector and economy. Among the causes of the Enron collapse are the conflict of interest between the two roles played by Arthur Andersen, as both auditor and consultant to Enron, the lack of attention shown by members of the Enron board of the directors to the off-books financial entities dealt business with and the lack of truthfulness by management about the health as well as its business operations. Also, when some of their business and trading ventures began to perform poor, they tried to cover up their failures. As a consequence, Enron was filed with bankruptcy and many employees lost their savings as well as their jobs (The Economist, 28th November 2002). Banks, suppliers and customers of Enron were also badly affected by the company collapse. As such, a strong lesson can be made to say that the board of companies must conduct their duties, not only to promote interest of the shareholders but also the welfare of the company's employees, creditors, customers as well as community at large.

Although there have been recommendations and efforts by various parties to eradicate these scandals, unfortunately it is still occurring and there is no sign that it will stop or even reduce in the future. This has been indicated in KPMG Malaysia Fraud Survey Report 2009 who revealed that a total of 61% of the respondents believed that fraud would rise in the next two years by which more than three quarters of the respondents believed that financial statement fraud will continue. In Malaysia, there are several corporate scandals that post a constant threat to the regulatory structure, public trust and confidence in the market economy. (Buang, 2010). Among these examples are the Transmile Group Bhd controlled

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