There are various integrated governance, risk and compliance

solutions available to capture information in order to evaluate risk

and to identify gaps in the organization’s principles and processes.
This type of software is based on project management style
methodologies such as the ABACUS methodology which attempts to
unify the management of these areas, rather than treat them as
separate entities.

Action Beyond Obligation

Enlightened boards regard their mission as helping management

lead the company. They are more likely to be supportive of the
senior management team. Because enlightened directors strongly
believe that it is their duty to involve themselves in an intellectual
analysis of how the company should move forward into the future,
most of the time, the enlightened board is aligned on the critically
important issues facing the company.

Unlike traditional boards, enlightened boards do not feel hampered

by the rules and regulations of the Sarbanes-Oxley Act. Unlike
standard boards that aim to comply with regulations, enlightened
boards regard compliance with regulations as merely a baseline for
board performance. Enlightened directors go far beyond merely
meeting the requirements on a checklist. They do not need
Sarbanes-Oxley to mandate that they protect values and ethics or
monitor CEO performance.

At the same time, enlightened directors recognize that it is not their

role to be involved in the day-to-day operations of the corporation.
They lead by example. Overall, what most distinguishes enlightened
directors from traditional and standard directors is the passionate
obligation they feel to engage in the day-to-day challenges and
strategizing of the company. Enlightened boards can be found in
very large, complex companies, as well as smaller companies.
Proposals

The book Money for Nothing suggests importing from England the
concept of term limits to prevent independent directors from
becoming too close to management and demanding that directors
invest a meaningful amount of their own money (not grants of stock
or options that they receive free) to ensure that the directors'
interests align with those of average investors. Another proposal is
for the government to allow poorly-managed businesses to go
bankrupt, since after a filing, directors have to cover more of their
own legal bills and are frequently sued by bankruptcy trustees as
well as investors.

Codes and guidelines

Corporate governance principles and codes have been developed in

different countries and issued from stock exchanges, corporations,
institutional investors, or associations (institutes) of directors and
managers with the support of governments and international
organizations.

As a rule, compliance with these governance recommendations is

not mandated by law, although the codes linked to stock exchange
listing requirements may have a coercive effect.

For example, companies quoted on the London and Toronto Stock

Exchanges formally need not follow the recommendations of their
respective national codes. However, they must disclose whether
they follow the recommendations in those documents and, where
not, they should provide explanations concerning divergent
practices.

Such disclosure requirements exert a significant pressure on listed

companies for compliance.
In the United States, companies are primarily regulated by the state
in which they incorporate though they are also regulated by the
federal government and, if they are public, by their stock exchange.
The highest number of companies are incorporated in Delaware,
including more than half of the Fortune 500.

This is due to Delaware's generally management-friendly corporate

legal environment and the existence of a state court dedicated solely
to business issues (Delaware Court of Chancery).

Most states' corporate law generally follows the American Bar

Association's Model Business Corporation Act. While Delaware
does not follow the Act, it still considers its provisions and several
prominent Delaware justices, including former Delaware Supreme
Court Chief Justice E. Norman Veasey, participate on ABA
committees.

One issue that has been raised since the Disney decision in 2005 is
the degree to which companies manage their governance
responsibilities; in other words, do they merely try to supersede the
legal threshold, or should they create governance guidelines that
ascend to the level of best practice. For example, the guidelines
issued by associations of directors (see Section 3 above), corporate
managers and individual companies tend to be wholly voluntary.

For example, The GM Board Guidelines reflect the company’s efforts

to improve its own governance capacity. Such documents, however,
may have a wider multiplying effect prompting other companies to
adopt similar documents and standards of best practice.
One of the most influential guidelines has been the 1999 OECD
Principles of Corporate Governance. This was revised in 2004. The
OECD remains a proponent of corporate governance principles
throughout the world.

Building on the work of the OECD, other international

organizations, private sector associations and more than 20
national corporate governance codes, the United Nations
Intergovernmental Working Group of Experts on International
Standards of Accounting and Reporting (ISAR) has produced
voluntary Guidance on Good Practices in Corporate Governance
Disclosure.

This internationally agreed benchmark consists of more than fifty

distinct disclosure items across five broad categories:

 Auditing.

 Board and management structure and process.

 Corporate responsibility and compliance.

 Financial transparency and information disclosure.

 Ownership structure and exercise of control rights.

The World Business Council for Sustainable Development WBCSD

has done work on corporate governance, particularly on
accountability and reporting, and in 2004 created an Issue
Management Tool: Strategic challenges for business in the use of
corporate responsibility codes, standards, and frameworks. This
document aims to provide general information, a "snap-shot" of the
landscape and a perspective from a think-tank/professional
association on a few key codes, standards and frameworks relevant
to the sustainability agenda.
Ownership structures

Ownership structures refer to the various patterns in which

shareholders seem to set up with respect to a certain group of
firms. It is a tool frequently employed by policy-makers and
researchers in their analyses of corporate governance within a
country or business group. And ownership can be changed by the
stakeholders of the company.

Generally, ownership structures are identified by using some

observable measures of ownership concentration (i.e. concentration
ratios) and then making a sketch showing its visual representation.
The idea behind the concept of ownership structures is to be able to
understand the way in which shareholders interact with firms and,
whenever possible, to locate the ultimate owner of a particular
group of firms. Some examples of ownership structures include
pyramids, cross-share holdings, rings, and webs.

Corporate governance and firm performance

In its 'Global Investor Opinion Survey' of over 200 institutional

investors first undertaken in 2000 and updated in 2002, McKinsey
found that 80% of the respondents would pay a premium for well-
governed companies. They defined a well-governed company as one
that had mostly out-side directors, who had no management ties,
undertook formal evaluation of its directors, and was responsive to
investors' requests for information on governance issues. The size of
the premium varied by market, from 11% for Canadian companies
to around 40% for companies where the regulatory backdrop was
least certain (those in Morocco, Egypt and Russia).
Other studies have linked broad perceptions of the quality of
companies to superior share price performance. In a study of five
year cumulative returns of Fortune Magazine's survey of 'most
admired firms', Antunovich et al. found that those "most admired"
had an average return of 125%, whilst the 'least admired' firms
returned 80%. In a separate study Business Week enlisted
institutional investors and 'experts' to assist in differentiating
between boards with good and bad governance and found that
companies with the highest rankings had the highest financial
returns.

On the other hand, research into the relationship between specific

corporate governance controls and some definitions of firm
performance has been mixed and often weak. The following
examples are illustrative.

Board composition

Some researchers have found support for the relationship between

frequency of meetings and profitability. Others have found a
negative relationship between the proportion of external directors
and profitability, while others found no relationship between
external board membership and profitability. In a recent paper
Bhagat and Black found that companies with more independent
boards are not more profitable than other companies. It is unlikely
that board composition has a direct impact on profitability, one
measure of firm performance.

Remuneration/Compensation

The results of previous research on the relationship between firm

performance and executive compensation have failed to find
consistent and significant relationships between executives'
remuneration and firm performance. Low average levels of pay-
performance alignment do not necessarily imply that this form of
governance control is inefficient. Not all firms experience the same
levels of agency conflict, and external and internal monitoring
devices may be more effective for some than for others.

Some researchers have found that the largest CEO performance

incentives came from ownership of the firm's shares, while other
researchers found that the relationship between share ownership
and firm performance was dependent on the level of ownership. The
results suggest that increases in ownership above 20% cause
management to become more entrenched, and less interested in the
welfare of their shareholders.

Some argue that firm performance is positively associated with

share option plans and that these plans direct managers' energies
and extend their decision horizons toward the long-term, rather
than the short-term, performance of the company. However, that
point of view came under substantial criticism circa in the wake of
various security scandals including mutual fund timing episodes
and, in particular, the backdating of option grants as documented
by University of Iowa academic Erik Lie and reported by James
Blander and Charles Forelle of the Wall Street Journal.

Even before the negative influence on public opinion caused by the

2006 backdating scandal, use of options faced various criticisms. A
particularly forceful and long running argument concerned the
interaction of executive options with corporate stock repurchase
programs. Numerous authorities
(including U.S. Federal Reserve Board economist Weisbenner)
determined options may be employed in concert with stock
buybacks in a manner contrary to shareholder interests. These
authors argued that, in part, corporate stock buybacks for U.S.
Standard & Poors 500 companies surged to a $500 billion annual
rate in late 2006 because of the impact of options. A compendium
of academic works on the option/buyback issue is included in the
study Scandal by author M. Gumport issued in 2006.

A combination of accounting changes and governance issues led

options to become a less popular means of remuneration as 2006
progressed, and various alternative implementations of buybacks
surfaced to challenge the dominance of "open market" cash
buybacks as the preferred means of implementing a share
repurchase plan

CORPORATE GOVERNANCE MODELS AROUND

THE WORLD

Although the US model of corporate governance is the most

notorious, there is a considerable variation in corporate governance
models around the world. The intricated shareholding structures of
Keiretsus in Japan, the heavy presence of banks in the equity of
German firms, the chaebols in South Korea and many others are
examples of arrangements which try to respond to the same
corporate governance challenges as in the US.
In the United States, the main problem is the conflict of interest
between widely-dispersed shareholders and powerful managers. In
Europe, the main problem is that the voting ownership is tightly-
held by families through pyramidal ownership and dual shares
(voting and nonvoting). This can lead to "Self-dealing", where the
controlling families favor subsidiaries for which they have higher
cash flow rights.

Anglo-American Model

There are many different models of corporate governance around

the world. These differ according to the variety of capitalism in
which they are embedded. The liberal model that is common in
Anglo-American countries tends to give priority to the interests of
shareholders. The coordinated model that one finds in Continental
Europe and Japan also recognizes the interests of workers,
managers, suppliers, customers, and the community.

Each model has its own distinct competitive advantage. The liberal
model of corporate governance encourages radical innovation and
cost competition, whereas the coordinated model of corporate
governance facilitates incremental innovation and quality
competition. However, there are important differences between the
U.S. recent approach to governance issues and what has happened
in the UK.

In the United States, a corporation is governed by a board of

directors, which has the power to choose an executive officer,
usually known as the chief executive officer.
The CEO has broad power to manage the corporation on a daily
basis, but needs to get board approval for certain major actions,
such as hiring his/her immediate subordinates, raising money,
acquiring another company, major capital expansions, or other
expensive projects.

Other duties of the board may include policy setting, decision

making, monitoring management's performance, or corporate
control.

The board of directors is nominally selected by and responsible to

the shareholders, but the bylaws of many companies make it
difficult for all but the largest shareholders to have any influence
over the makeup of the board; normally, individual shareholders are
not offered a choice of board nominees among which to choose, but
are merely asked to rubberstamp the nominees of the sitting board.

Perverse incentives have pervaded many corporate boards in the

developed world, with board members beholden to the chief
executive whose actions they are intended to oversee. Frequently,
members of the boards of directors are CEOs of other corporations,
which some see as a conflict of interest.