The need for for formal government regulation to ensure societal Essay

The need for for formal government regulation to ensure societal checks and balances on perhaps wayward corporations - Essay Example The need for changes in management structure was particularly evident after HIH incident when the board composed of the chief executive’s friends and associates failed to assess effectively the management performance, deterring non-executive directors from controlling processes inside the company. (Siladi, 2006 ) As trust towards company insiders as well as to auditors, analysts or regulators was shattered, governments started to think over regulations which would prevent such unfair practices. Different countries responded differently to the problem of inadequate corporate governance system. While Australia and the UK have issued recommendations based on ‘comply and explain’ principle, the USA has introduced more severe measures where non-compliance results in criminal punishment. The US Sarbanes-Oxley Act of 2002 set firm regulations for senior management, non-compliance with which results in 20 years of imprisonment and fines up to $5 million. (Loeb 2005) Many countries reviewed their regulations concerning the work of the directors. The recommendations or regulations issued in each of countries converge in several issues concerning directors: the presence of independent non-executive directors in the board, participation of non-executives in nomination and remuneration committees, control and decision-making function of the executives, their fair remuneration. Loeb, L. Executive Summary: Sarbanes-Oxley: Worse than No Solution at All? Available at Ziff Davis CIO Insight. 2005 http://www.cioinsight.com/c/a/Past-News/Executive-Summary-SarbanesOxley-Worse-than-No-Solution-at-All/ [accessed 17 Dec.