concept of corporate governance (2 marks) 2. example (3 marks)

1. Concept of Corporate Governance (2 marks):

Corporate governance refers to the system of rules, practices, and processes by which a company is directed and controlled. It involves balancing the interests of a company's many stakeholders, such as shareholders, management, customers, suppliers, financiers, government and the community. Corporate governance provides a framework for attaining a company's objectives, and encompasses practically every sphere of management, from action plans and internal controls to performance measurement and corporate disclosure.

2. Example of Corporate Governance (3 marks):

A good example of corporate governance is the regulatory framework that was established by the Sarbanes-Oxley Act of 2002 in the United States. This act was created in response to a number of major corporate and accounting scandals including those affecting Enron, Tyco International, and WorldCom. These scandals, which cost investors billions of dollars when the share prices of the affected companies collapsed, shook public confidence in the nation's securities markets.

The Sarbanes-Oxley Act aimed to improve corporate governance and accountability by implementing stricter compliance regulations and penalties for non-compliance. It increased the independence of the external auditors who review the accuracy of corporate financial statements, and increased the oversight role of boards of directors and officers. This is a clear example of how corporate governance can be enforced by law to protect the interests of all stakeholders.