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Strengthening corporate governance to combat corruption
Transparency International
Transparency International
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Abstract
"Transparency International (TI) considers strong corporate governance systems a vital component of company efforts to reinforce the right incentives and practices and to address the corrupt practices they confront. As empirical evidence has shown, without good corporate governance systems in place, the overall impact of anti-corruption initiatives is reduced and the growth of companies — and the countries where they operate — is undermined.1 High profile cases of corporate mismanagement or employee misconduct, from Siemens in Germany and UBS in Switzerland to IBM in Argentina and Samsung in South Korea, demonstrate what can happen when the tenets of corporate governance — transparency, accountability and integrity — are absent, inadequate or abused. Despite the benefits of corporate governance, insufficient work has been done to realise its potential as a bulwark against abuses and for preventing and managing a company’s corruption risks. This policy paper sets forth TI’s recommendations for an effective agenda of action and reform. It offers a timely input into the search for medium-term solutions for rebuilding the markets, economies and confidence which the current global crisis has eroded. 1. Why is corporate governance critical? Good corporate governance serves as a framework to secure investor confidence, enhance access to capital markets, promote growth and strengthen economies. By providing for clear ‘rules of the game’ and ‘checks and balances’, corporate governance systems help to lower company costs (for capital and production) and increase economic output.2 Such characteristics make corporate governance necessary, beneficial and useful for all sectors and types of companies whether they are multinationals, state-owned enterprises, domestic firms, small businesses or family-owned operations. Although corporate governance frameworks differ from country to country based on the legal, regulatory and institutional environment, they have a common aim: to define clearly the rights, responsibilities and behaviours that are required of a company’s owners (the ‘principals’) and managers (the ‘agents’) for the business to operate successfully.3 ‘Owners’ include any group or individual holding an equity stake in the business, usually in the form of shares. ‘Managers’ comprise all persons who have been extended the right to run the business on behalf of the owners. These individuals can be company executives or members of the board of directors, who are either appointed or elected to their position. When breaches in corporate governance happen, they may be systemic, result from negligence or reflect the actions of rogue employees. When systemic failures occur as have characterised the global crisis, they are a strong signal that the balance of interests which a good corporate governance structure should ensure — between owners (including stakeholders) and management (including the board of directors) — is out of equilibrium."
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2009-06-01
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With permission of the license/copyright holder