The American National System of Corporate Governance
Introduction Corporate governance (CG) has recently been extensively discussed, intensely debated and variously deﬁned in the United States. For the purposes of this chapter, CG shall mean the internal arrangements within a corporation intended to provide reasonable assurances that corporate directors and ofﬁcers make and implement decisions in accordance with their duties of care and loyalty to their corporations. CG in the United States is often associated with the recent initiatives taken in the wake of corporate scandals such as Enron and MCI. While the recent initiatives are undoubtedly important, their signiﬁcance can best be understood in the context of the existing frameworks under corporate and securities law. The current initiatives in the United States (i.e. the recently adopted CG provisions in the listing requirements for the New York Stock Exchange (NYSE) – and the provisions of the Sarbanes–Oxley Act of 2002 – often called “Sarbanes– Oxley”) in important ways simply add to the governance measures already in place pursuant to corporate law and securities regulation in the United States. Only after understanding foundations in corporate law and securities regulation in the United States is it possible to understand the signiﬁcance, and the limitations, of the recently adopted NYSE listing requirements and of Sarbanes–Oxley. In general, the recent NYSE initiatives attempt to improve the degree of independence among directors of corporations listed there so that they are better able – and more likely – to meet the performance standards currently applicable to directors under corporate law (i.e. duties of care and loyalty), but the NYSE does not change those standards. Unfortunately, the NYSE listing requirements do not have the force of law. Sarbanes–Oxley, on the other hand, in general, attempts to improve the independence of external auditors and corporate directors so that they are better able – and more likely – to prepare public disclosures in form and substance required by US securities regulations. There are also provisions intended to enhance the care with which corporate ofﬁcers prepare required public disclosures. Unfortunately, Sarbanes–Oxley applies only to disclosure requirements under US securities regulations. With limited exceptions, Sarbanes–Oxley is not speciﬁcally intended to apply to directors’ or ofﬁcers’ broader obligations to their corporations or the standards applicable to their performance of those obligations.
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