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Consequences of weak governance practices - Coggle Diagram
Consequences of weak governance practices
Failing companies
Accounting fraud (Eg Enrorn, Worldcom, Parmalat)
Lack of knowledge, skills and experience on the board (eg Barings Bank)
Dominant Personalities (eg Maxwell, Polly Peck, Tesla and Elon Musk)
Failure to understand and manage risk (eg Global financial crisis, Lehman Brothers, unethical business practices eg BHS and Phillip Green)
Reputational problems
Unethical business practices Eg Volkswagen (Dieselgate), Siemens (bribery)
Lack of transparency and disclosure eg Olympus
Poort relationship between the board and shareholders eg Sports Direct
Inappropriate remuneration and reward systems for directors and senior executive eg Enron, Carillion
Excessive regulation
Many of the laws, regulations, standards and codes introduced globally have been in response to the scandals that have resulted from weak governance practices
Regulation in some cases have been reactive to a particular circumstances and although well intended have been poorly conceived
It has been argued by some that each initiative has tended to add to the compliance burden of organisations, especially those listed on stock exchanges
Led to a compliance culture/tick box approach adopted by many eg SOX led to many non-US companies delisting from NYSE to avoid having to comply with s. 404 of the act which was seen to be over bureaucratic, costly and providing little benefit
Lack of investment in capital markets
Evidence shows that investors place importance on good governance practices when investing in companies
A lack of these practices can lead to a lack of investment
The development of shareholder representative bodies such as the Investment Association or functions within some of the larger institutional shareholders specifically for monitoring the corporate governance practices of the companies they invest in
A focus on regulating and disclosing senior executive pay