Corporate Governance: Is It Time For Global Standards?

Abstract

Financial markets depend on the integrity of the financial information generated by management. In order for that integrity to be ensured, an effective corporate governance system must be in place by the corporation. While the United States has been the initial focal point on the effectiveness of corporate governance through the actions at Enron and WorldCom, European companies such as Ahold, Parmalat and Adecco have also demonstrated that the European Union faces challenges pertaining to corporate governance. The purpose of this paper is to compare how the United States and the European Union address the issue of corporate governance. The paper will examine and compare the Sarbanes-Oxley Act in the United States, the European Commission’s Action Plan on corporate governance and the new corporate governance guidelines issues by the Organization for Economic Cooperation and Development. The paper will conclude with a discussion on whether global corporate governance standards are necessary to ensure the stability of global financial markets. The author will argue that certain core standards are universal in nature. However, flexibility is still warranted in some areas due to specific cultural beliefs and established business standards.