Newspapers produce detailed accounts of corporate fraud, accounting scandals, insider trading, excessive compensation, and other perceived organizational failures—many of which culminate in lawsuits, resignations, and bankruptcy. Interestingly, Scrushy was not convicted of accounting manipulations in a criminal trial brought by the U. As the case of Health South illustrates, the system of checks and balances meant to prevent abuse by senior executives does not always function properly. exchanges are as likely to restate their financial results as domestic companies, indicating that governance is a global issue. Reports suggest that these companies suffered from a "breakdown in corporate governance." What does that mean?The stories have run the gamut from the shocking and instructive (epitomized by Enron and the elaborate use of special-purpose entities and aggressive accounting to distort its financial condition) to the shocking and outrageous (epitomized by Tyco partially funding a .1 million birthday party in 2002 for the wife of Chief Executive Officer [CEO] Dennis Kozlowski that included a vodka-dispensing replica of the statue Perhaps not surprisingly, the CEO also received backdated stock options during his tenure—stock options whose grant dates were retroactively changed to coincide with low points in the company's stock price (see Figure 1.1). Unfortunately, governance failures are not isolated instances. Major international companies such as Ahold, Parmalat, Royal Dutch/Shell, Satyam, and Siemens were all plagued by scandal that involved a breakdown of management oversight. What is corporate governance, and what is it expected to prevent?Under most circumstances, backdating is seen as fraudulent and illegal, although there are some situations in which backdating can be used in a legal and beneficial way, such as backdating a claim for a past period.Sometimes certain claims (such as insurance claims) can be backdated if the could not be completed at an earlier date, although there must be good reason for neglecting to claim in advance.
Behavioral psychology and other social sciences have provided evidence that individuals are self-interested.Corporate Finance, 3e (Berk/De Marzo) Chapter 1 The Corporation 1.1 The Four Types of Firms 1) A sole proprietorship is owned by: A) one person. A) “S” corporation B) Limited partnership C) “C” corporation D) Limited liability company 4) Which of the following organization forms accounts for the greatest number of firms? A) Limited partnership B) “C” corporation C) “S” corporation D) Limited liability company 3) Which of the following organization forms accounts for the most revenue?When a draft of National Instrument 55-104 was first published for comment, the Canadian Securities Administrators linked this proposed timing change, among other things, to the practice of improper stock options backdating. The suggestion that insider reporting obligations might deter the practice of options backdating is intriguing.