The last few years have shown noticeable growth in the concern about corporate governance, namely in the area of corporate credit concepts. Changes in governance codes have been made by companies worldwide, as well as at many state government levels. The employing of corporate credit concepts is vital for effective governance and helps corporations and governments to establish a more stable economic growth.

Countries with existing strict governances are constantly working to maintain and follow these guidelines. Today’s heightened emphasis on stricter standards can be attributed to the fall of the Enron Corporation. Enron’s collapse proved that a company which seemed financially strong is capable of failing if proper corporate credit concepts or accountability measures are not in place or in force. The bankrupt company, like many others, was a victim of unscrupulous leadership and lack of guidelines for accountability. According to Trent Lee, the scandal at Enron was a catalyst for regulators, worldwide, to design and implement policies with the obvious goal of preventing a similar failure. The Sarbanes-Oxley Act (2002) and the Higgs Report (2003) are two of the most prominent actions to take place thus far.

Corporate governance is not a simple concept to define due to the various views of its applications. A broad concept might be in the defining of the relationship of a company and its shareholders with emphasis on resolving the company issue. Yet, a contemporary approach looks not only at the company and shareholders, but at stakeholder relationships within the company, such as employees, customers, suppliers, stockholders, etc. Recent corporate governance changes have shown there is proof that the contemporary approach is a very sensible and reasonable approach.

Trent Lee states that practices in corporate governance development have shown some obvious patterns. For starters, institutional investors have become more actively involved. For example, the implementing of corporate credit concepts into the management of pension funds and asset management. Investors have shown more patience in waiting on investment returns, while requiring more accountability for director’s pay. Second, there is evidence that globalization of trade and finance have attributed to more consistent corporate governances and the adoption of the OECD (1999), by many countries. The OECD is representative of an American style of corporate governance principles. Political unrest, religious views, and legalities significantly influence how well it unites countries that have adopted this principle.  Third, corporate governance goals have been extended its bounds to include social responsibility. A company’s performance is relative to its social and environmental responsibility.

Finally, Trent Lee sums up corporate governance along with corporate credit concepts as means of a more contemporary approach that employs a checks and balance means to achieving profitability and maintaining social responsibility.

Author: Trent and Chad Lee