For example, mergers and acquisitions are perceived as the latest fashionable trend to grow the company market share and profitability due to synergies affect. But as the practise has shown, out of the latest mergers, about 75% did not perform as they were expected by the top management.
The Sarbanes-Oxley Act was aimed to facilitate and solve some of these very difficult problems in the accounting and management of the companies. The companies now are restricted to the amount of intangible assets they can show in their balance sheets, which reduces the moral opportunism problems in the company. The company has also currently to hire the auditors which are completely independent from the management of the company and cannot carry out any other than audit services for the company. This solves the problems of insider trading, where the management take advantage of their internal knowledge of the real company situation. On the other hand, the agency problem, though is aimed to be solved, is at much higher cost for the companies now. Also, the auditors are currently under a very big pressure currently to confirm the very big numbers of the intangible assets of the companies.
Previously, as the auditors were heavily involved in the businesses of the company, the moral of the corporate governance suffered. Also, the company has to hire independent directors which is aimed to solve the ethics problem when the directors make the decisions not in the best of the shareholders, creditors and good name of the company, but for their personal wealth. The amount of loans which could be granted to the top management is reduced which solves the possible opportunism by the management. In general, the Sarbanes-Oxley act was aimed to reduce the utilitarianism behaviour of the managers who are tempted to receive the greatest amount of benefits and pleasure possible over the pain of the other. On the other hand, the amount of the reduced bonuses to the top management can create other ethics problems where the management is not sufficiently motivated to perform their best as they would not feel their personal efforts are rewarded as they do not have the stake in the company.
To summarize, the issue of corporate governance morality and ethics needs very in depth revising by the global guru in corporate governance. Though all the countries have very different mentalities and business practices, but accounting for the fact that all of them are striving to perform well in the global arena, world wide global ethics must be worked out and decided upon: whether to achieve sustainable economic growth couples with environmental friendliness and promotion of balance in the treatment of personal and business ambitions with ethics, or to go on another root. The morals must then be adapted by each country slightly to account for specific differences and the government together with the society must decide on the cost they are ready to give up to achieve wealth growth: to decide what is acceptable in the business and what must be punished very heavily as it destroys the morals within the society. After that, the rules must be applied within the companies with top management being heavily devoted to achieving company growth balanced with ethics. The mission and vision must include these issues. Top management must send the signals to all the other staff that the priority is the ethics and morals.
Obviously, that the natural selection principle contradicts with the morals being used in the society, but aren't we different from the animal world exactly because we can think over wisely and reason each our action and natural survival instinct? Or are our corporate governance practices just a very loud sign that our society morals are indicative of "de-evolution" and turning us back from wise human beings?
Available from www.wikipedia.org
Brealey, R., Myers, SC. Fundamentals of Corporate Finance, 4th Ed., McGraw & Hill, 2004.
Abrams, J. Quantitative Business Valuation: A Mathematical Approach for Today's Professionals, McGraw-Hill, 2000.