4.2 Key Regulations and Codes

Several key regulations and codes have been established to guide corporate governance practices. These frameworks set the standards for corporate behavior and ensure that companies adhere to ethical and legal norms.


Sarbanes-Oxley Act (SOX)

The Sarbanes-Oxley Act (SOX) was enacted in the United States in 2002 in response to major corporate scandals such as Enron and WorldCom. SOX aims to improve the accuracy and reliability of corporate disclosures and to prevent corporate fraud. Key provisions of SOX include:

  • Internal Controls: Companies must establish robust internal controls over financial reporting to prevent and detect errors or fraud.

  • Audit Committees: Public companies must have independent audit committees responsible for overseeing the financial reporting process.

  • Executive Accountability: CEOs and CFOs must certify the accuracy of financial statements, making them personally accountable for any misstatements.

  • Whistleblower Protection: SOX provides protections for employees who report fraudulent activities, encouraging whistleblowing.

Cadbury Report

The Cadbury Report, published in the UK in 1992, is a foundational document in the field of corporate governance. It emphasized the importance of corporate governance standards and recommended several practices to enhance governance, including:

  • Board Composition: The report recommended that boards should have a balance of executive and non-executive directors to ensure independent judgment.

  • Audit Committees: It suggested the establishment of audit committees composed of non-executive directors to oversee financial reporting.

  • Separation of Roles: The report advocated for the separation of the roles of Chairman and CEO to avoid concentration of power.

Other Important Codes

Other significant codes and regulations that have shaped corporate governance practices include:

  • King Report: Originating from South Africa, the King Report emphasizes the importance of integrated reporting and sustainability in corporate governance.

  • Dodd-Frank Act: Enacted in the United States in 2010, the Dodd-Frank Act introduced several measures to increase transparency and accountability in the financial sector.

  • Corporate Governance Codes in India: In India, corporate governance is regulated by various laws, including the Companies Act, 2013, and guidelines issued by the Securities and Exchange Board of India (SEBI).


Last modified: Friday, 18 October 2024, 11:42 AM