The rewards of virtue-Does good corporate governance pay? Studies give contradictory answers

from the Economist Online, April 26, 2010

ONCE again, corporate-governance reform is back on the legislative agenda, not least in the United States. In 2002, after the scandalous collapses of Enron and WorldCom, Congress voted in the Sarbanes-Oxley act, which was intended among other things to beef up corporate risk-management. Now, the financial reforms being considered in Washington include several proposals intended to correct flaws in the oversight of firms that were revealed in the aftermath of the financial crisis. The reforms likeliest to become law include an advisory “say on pay” vote for shareholders on the remuneration of top executives, and measures to make it easier for shareholders to nominate candidates for election to company boards.

As always, these efforts to improve corporate governance have plenty of opponents. They argue that, contrary to the claims of the reformers, the changes would harm corporate performance by wrapping managers up in red tape. In the case of Sarbanes-Oxley, which was rushed into law with too little discussion of the details, the critics of reform had a point. The case for the latest proposals seems more straightforward, however, and has been debated for many years….(continue reading)

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