Loading...

PRDV205: Business Law and Legal Procedures

Unit 10: CORPORATE GOVERNANCE AND REGULATORY COMPLIANCE   Now that you have explored various areas of business regulation in the US, you are probably wondering how businesses deal with the many legal requirements they are subject to.  For public corporations, managing compliance with government regulations is especially a challenge, given the accounting and securities regulations that have been put in place since 2002.  Recently, the position of “Chief Compliance Officer,” or CCO, has taken on an important role in corporate governance.  However, the CCO cannot be the only corporate leader concerned with issues of compliance and corporate liability for violating regulations.  Particularly after the adoption of the Sarbanes-Oxley Act, corporate leaders may be held personally liable if they fail to act on information suggesting noncompliance with accounting and other regulations.  Corporate executives and members of the board of directors must also remain vigilant.

In this unit, you will look at the practicalities of applying government regulations in the corporate environment.  You will review the reforms of the past decade and consider their effects on corporate culture.  The readings in this unit will also highlight the role of a company’s board of directors in corporate governance, particularly in relation to a board’s duty of oversight.  Lastly, you will learn about how companies deal with “red flags” – warning signs that compliance problems may be arising – as well as questions that need to be considered when a corporation sets out to address compliance issues.

Unit 10 Time Advisory
This unit should take you approximately 3 hours to complete.

Unit10 Learning Outcomes
Upon successful completion of this unit, you should be able to: - analyze basic compliance programs and apply program policies to real-world situations; - explain regulatory compliance goals effectively; - evaluate ethical issues in regulatory compliance; and - critically review and explain regulatory compliance programs.

10.1 Corporate Governance Reform   - Reading: Corporate Governance: “Chapter 4, Section 1: Recent Governance Reforms: An Executive Summary” Link: Corporate Governance: “Chapter 4, Section 1: Recent Governance Reforms: An Executive Summary” (PDF)

 Instructions: This reading provides you with an overview of reforms
implemented over the past decade or so that relate to corporate
governance.  As your previous readings have shown, the US Congress
instituted a major reform to corporate governance regulations with
the Sarbanes-Oxley Act of 2002.  In addition, there are other
reforms that impact the conduct of corporate governance and the
legal liabilities faced by corporate boards and executives.  Be sure
you understand the reasoning behind these reforms, as you will
consider the effects of these reforms later in this unit.  

 Reading this textbook section should take approximately 15
minutes.  

 Terms of Use: This text was adapted by The Saylor Foundation under
a [Creative Commons Attribution-NonCommercial-ShareAlike 3.0
License](http://creativecommons.org/licenses/by-nc-sa/3.0/) without
attribution, as requested by the work’s original creator or
licensee.

10.2 The Current Regulatory Climate   - Reading: Corporate Governance: “Chapter 6, Section 1: The New Regulatory Climate" Link: Corporate Governance: “Chapter 6, Section 1: The New Regulatory Climate” (PDF)

 Instructions: This reading provides you with a consideration of the
effects of corporate governance reforms as they are experienced in
the current regulatory environment.  Note in particular the enhanced
role of the audit committee.  Why do you think this expansion of the
audit committee’s duties has come about?  

 Reading this textbook section should take approximately 15
minutes.  

 Terms of Use: This text was adapted by The Saylor Foundation under
a [Creative Commons Attribution-NonCommercial-ShareAlike 3.0
License](http://creativecommons.org/licenses/by-nc-sa/3.0/) without
attribution, as requested by the work’s original creator or
licensee.

10.3 The Duty of Oversight   - Reading: Corporate Governance: “Chapter 6, Section 3: Legal Issues Regarding Oversight” Link: Corporate Governance: “Chapter 6, Section 3: Legal Issues Regarding Oversight” (PDF)

 Instructions: This reading provides you with an overview of the
legal issues related to a corporate board's duty of oversight. 
While corporate boards are often protected by the Business Judgment
Rule – which absolves directors of liability if they act on an
informed basis and in good faith – this protection does not apply if
directors do not act with good judgment.  By failing to exercise
appropriate oversight, a board may face liability.  As you finish
your reading, ask yourself what a board can and should do in the
face of “red flags” that indicate possible violations of the law.  

 Reading this textbook section should take approximately 15
minutes.  

 Terms of Use: This text was adapted by The Saylor Foundation under
a [Creative Commons Attribution-NonCommercial-ShareAlike 3.0
License](http://creativecommons.org/licenses/by-nc-sa/3.0/) without
attribution, as requested by the work’s original creator or
licensee.

10.4 Considerations in Building Effective Corporate Governance and Compliance   - Reading: Corporate Governance: “Chapter 6, Section 4: Red Flags in Management Culture, Strategies, and Practices"; “Chapter 6, Section 5: Questions about Ethics and Compliance for the Board”; and “Chapter 13, Appendix B: Red Flags in Management” Link: Corporate Governance: “Chapter 6, Section 4: Red Flags in Management Culture, Strategies, and Practices” (PDF); “Chapter 6, Section 5: Questions about Ethics and Compliance for the Board” (PDF); and “Chapter 13, Appendix B: Red Flags in Management” (PDF)

 Instructions: As the your previous readings indicate, it is
important for boards and directors to be aware of red flags that
could result in liability upon a failure to act.  For example, if
directors ignore emails indicating irregularities in the
corporation's accounting, they may find themselves facing lawsuits
and government investigations.  Chapter 6, Section 4 of the textbook
provides a consideration of these red flags, such as too frequent
changes in business strategies.  In addition, Section 5 of the
chapter provides a list of questions that corporate leaders should
consider when addressing issues of ethics and compliance and
developing appropriate policies.  Lastly, Chapter 13, Appendix B
explores in greater depth the issue of red flags, with a particular
focus on certain common issues that corporations face – such as a
managerial focus on rapid, short-term revenue growth or driving up
the stock price – that may indicate compliance problems.  

 Reading this textbook section should take approximately 1 hour.  

 Terms of Use: This text was adapted by The Saylor Foundation under
a [Creative Commons Attribution-NonCommercial-ShareAlike 3.0
License](http://creativecommons.org/licenses/by-nc-sa/3.0/) without
attribution, as requested by the work’s original creator or
licensee.