On Corporate Goverance

I think it is quite clear where I stand on good governance. I believe it is vital and important but I diverge on what ensures it.

We had an interesting talk on the Sarbanes Oxley's Act and corporate governance during the lunch time talk. Of course, I have heard this debate a number of times and the most frequently articulated comments on SOX is the cost of compliance associated which may be counter-productive. What I am interested however is on whether it is indeed effective.

To set the record straight, I have no doubts about its importance and its usefulness and place in corporate governance. However, to argue that it is going to be the panacea or silver bullet for corporate governance and preventing fraud, I would seriously doubt it. People have often commented on the speed that it was enacted without further deliberation. (It was overwhelmingly vote for and beats even vote against legalising marijuana in the US). I suspect that it does not address the systemic root of the problem.

There is no empirical evidence to suggest that it is even going to work. It is a theoretical and logic postulate. If we do see less fraud, it is probably because people are generally honest more so that the SOX working. It can also imply that people are generally not smart enough to beat the controls. These facts do not equate that people who have the intention to and the smarts to do it, cannot do it.

At the end of the day, ethics and the societal's moral fibre is the real root of the problem. Of course, that is a much bigger issue.

Controls would just be bring about a debate of balance between its cost and effectiveness.

So do I think it is good? I'm ambivalent. If I want to do business in the US or prove that the firm I run have "good corporate governance", I think it is a good and established recognised standard.