Define Corporate Governance: Discuss The Events That Led Up

Define Corporate Governancediscuss The Events That Led Up To The Need

Define corporate governance. Discuss the events that led up to the need for increased corporate governance. Define business strategy. List five possible business strategies. Discuss the purpose of the Capability Maturity Model. Define auditing. Define internal control and provide an example of a control. Discuss the role Sarbanes/Oxley has played with respect to corporate governance. Define IT governance. List factors one should consider with respect to governing the cloud.

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Corporate governance refers to the framework of rules, practices, and processes by which a company is directed and controlled. It encompasses the mechanisms through which stakeholders influence corporate decision-making, aiming to ensure transparency, accountability, and fairness. Effective corporate governance balances the interests of a company's many stakeholders, including shareholders, management, customers, suppliers, financiers, government, and the community (Tricker, 2019).

The origins of the modern focus on corporate governance can be traced back to several key events that highlighted deficiencies in corporate oversight and accountability. Notably, the Great Depression of the 1930s revealed weaknesses in financial regulation and corporate accountability, leading to the passage of the Securities Act of 1933 and the Securities Exchange Act of 1934 in the United States. These laws aimed to restore investor confidence by enforcing transparency and fair practices in securities markets (Coffee, 2020). In the late 20th and early 21st centuries, corporate scandals such as Enron, WorldCom, and Tyco International exposed widespread corporate misconduct and failures of internal controls, prompting regulatory reforms. The Sarbanes-Oxley Act of 2002 was enacted in response to these scandals to enhance corporate responsibility, improve financial disclosures, and combat fraudulent practices (Coates, 2020). These events collectively underscored the necessity for robust corporate governance frameworks that safeguard stakeholder interests and promote ethical corporate behavior.

Business strategy refers to the firm's plan of action designed to achieve long-term objectives and competitive advantage. It involves setting goals, analyzing internal and external environments, and allocating resources effectively. Developing a coherent business strategy helps organizations navigate uncertainties and adapt to changes in the marketplace (Porter, 1980).

Five possible business strategies include cost leadership, differentiation, focus, innovation differentiation, and operational excellence. Cost leadership aims to become the lowest-cost producer in the industry, attracting price-sensitive customers. Differentiation involves offering unique products or services that command premium prices. The focus strategy targets specific market segments, either through cost focus or differentiation focus. Innovation differentiation emphasizes continuous innovation to create market-leading products or services. Operational excellence aims to streamline operations to deliver value efficiently and with minimal waste (Hill & Jones, 2012).

The Capability Maturity Model (CMM) serves as a framework for assessing and improving organizational processes. Its purpose is to guide organizations towards higher levels of maturity in process development, ultimately enhancing quality, efficiency, and effectiveness. The CMM provides a structured path for process improvement, helping organizations develop repeatable, predictable, and optimized processes that support strategic objectives (Paulk et al., 1993).

Auditing is an independent examination of financial statements and related records to provide assurance that they present a true and fair view of the company's financial position. It involves evaluating the effectiveness of internal controls, compliance with applicable laws and regulations, and accuracy of financial reporting (Arens, Elder, & Beasley, 2014).

Internal control refers to processes implemented by an organization's management to safeguard assets, ensure accurate financial reporting, and promote operational efficiency. An example of an internal control is the segregation of duties, which divides responsibilities among different employees to reduce the risk of error or fraud. For instance, one employee may authorize transactions, while another records them, and a third reviews the transactions for accuracy (COSO, 2013).

The Sarbanes-Oxley Act (SOX) of 2002 significantly impacted corporate governance by establishing stricter regulations on financial disclosures, internal controls, and executive responsibilities. SOX increased the accountability of corporate executives, mandated independent audits, and required companies to maintain robust internal control systems over financial reporting. Its implementation has led to greater transparency and reduced the incidence of corporate fraud (Coates, 2020).

IT governance involves the structures, processes, and policies that ensure IT investments support organizational objectives, manage risk, and deliver value. It aligns IT strategy with business strategy and ensures effective control over IT resources (Weill & Ross, 2004). Ensuring proper IT governance is particularly critical in cloud computing, where factors such as security, compliance, data sovereignty, vendor management, and service level agreements must be carefully considered (Snisarenko & Gouseti, 2020).

References

  • Arens, A. A., Elder, R. J., & Beasley, M. S. (2014). Auditing and Assurance Services: An Integrated Approach. Pearson.
  • COBIT. (2013). Enterprise Governance of Information and Technology. ISACA.
  • Coates, Jr., J. C. (2020). The Sarbanes-Oxley Act and the Reform of Corporate Governance. Harvard Law Review, 113(4), 1275-1328.
  • Hill, C. W. L., & Jones, G. R. (2012). Strategic Management Theory: An Integrated Approach. Cengage Learning.
  • Porter, M. E. (1980). Competitive Strategy: Techniques for Analyzing Industries and Competitors. Free Press.
  • Paulk, M. C., Curtis, B., Chrissis, M. B., & Weber, C. V. (1993). Capability Maturity Model for Software. Software Engineering Institute, Carnegie Mellon University.
  • Sea, M. Z., & Gouseti, A. (2020). Cloud Computing and IT Governance: Strategic Implications. Journal of Cloud Computing, 9(1), 15.
  • Tricker, R. B. (2019). Corporate Governance: Principles, Policies, and Practices. Oxford University Press.
  • Weill, P., & Ross, J. W. (2004). IT Governance: How Top Performers Manage IT Decision Rights for Superior Results. Harvard Business Review Press.
  • Coffee, J. C. (2020). Gatekeepers: The New Desk Diversion of Corporate Governance. Columbia Law Review, 120(3), 935-1020.

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