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Board accountability and the entity maximization and sustainability approach

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posted on 2017-01-01, 00:00 authored by Andrew Keay
Introduction Undoubtedly the accountability of boards is regarded as a critical issue in corporate governance. The OECD has stated that “[t]he corporate governance framework should ensure the strategic guidance of the company, the effective monitoring of management by the board, and the board’s accountability to the company and the shareholders.” In the report of the Cadbury Committee on the Financial Aspects of Corporate Governance (commonly referred to as “the Cadbury Report”), delivered in 1992, the central issue for corporate governance was said to be: how to strengthen the accountability of boards of directors to shareholders. It has been said that good corporate governance is able to be best achieved by holding directors accountable for their behavior and decisions. It has been argued that accountability of directors is at the heart of corporate governance and a cornerstone of good corporate governance. Good corporate governance is able to be best achieved by focusing on the accountability of directors, and it can be argued that accountability of directors is the basis for the success of all other principles of corporate governance. The issue of accountability has been raised as a major issue at very important points of time over the years and particularly following scandals like Enron and Worldcom in the early days of this century. Certainly the Cadbury Committee was established shortly after scandals involving UK companies, such as Polly Peck and Maxwell Communications. According to the Cadbury Report, its purpose was “to review those aspects of corporate governance specifically related to financial reporting and accountability.” It also stated that while boards have to be free to take their companies forward, in doing so they must operate within a framework of effective accountability, and this is the essence of any system of good corporate governance. One of the leading problems in corporate governance is the fact that what accountability involves and how it is worked out in practice has not been identified and thought through properly. The fact that the accountability of boards is essential to corporate governance means that the nature of corporate governance is an important matter. There are various theories of corporate governance and these are tied to theories devised to identify and articulate what is to be the objective of a company. A recent approach that does this is the entity maximization and sustainability theory (EMS).

History

Title of book

Understanding the company: corporate governance and theory

Chapter number

12

Pagination

271 - 292

Publisher

Cambridge University Press

Place of publication

Cambridge, Eng.

ISBN-13

9781316536384

Language

eng

Publication classification

B1.1 Book chapter; B Book chapter

Copyright notice

2017, Cambridge University Press

Extent

13

Editor/Contributor(s)

Barnali Choudhury, Martin Petrin

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