Corporate governance refers to the set of values and rules, which govern the way in which an organization operates. These rules and values provide detailed information on aspects like who bears the responsibility and accountability for ensuring that the company is implementing transparent business procedures that work in the best interest of the company’s stakeholders. These sets of rules create a culture within the organization which aims to meet the long-term objectives of the company after considering the needs as well as the interests of all parties involved. To promote these principles in the company, the Regulators have laid down certain policies and procedures which outline the basic requirements to operate transparently on a daily basis. In cases of lack of strong corporate culture along with ongoing investments into the process of improvement and regulation of corporate governance activities, companies’ organizations face the negative repercussions of being charged with fraud, and poor credibility, which could lead to potential fall-out that has recently plagued several large corporations.
In 2002, the Sarbanes-Oxley Act (SOX) had been introduced to regulate the amount of organizational transparency which was needed for outside interest. It also focused on re-evaluating the performances of auditors, who lacked the ability to identify fraudulent financial information. On account of large corporate scandals which engulfed companies like Enron and WorldCom, the SOX Act was introduced to establish newer and transparent policies for public company boards along with management, and accounting organizations, which dealt with financial reporting. It had been seen that the pressure to meet financial goals caused unintentional financial woes amongst the financial managers. These pressures created a rift of fraud that led to financial scandals in the market which calls for a wave of reform along the lines of corporate responsibility as well as effective governance (Hollein, 2010).