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History of Corporate Governance

The history of corporate governance began in the 17th century Dutch Republic with the first recorded dispute between shareholders and directors of the Dutch East India Company. In the US, early corporations had superior governance to those in the late 19th and early 20th centuries due to internal checks and balances. After several corporate scandals in the early 2000s, interest in governance increased and led to the passage of the Sarbanes-Oxley Act of 2002. The 1997 East Asian Financial Crisis highlighted weaknesses in corporate governance mechanisms in countries like Thailand and South Korea. Saudi Arabia has also made progress implementing appropriate governance with the issuance of a code in 2006.

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60 views

History of Corporate Governance

The history of corporate governance began in the 17th century Dutch Republic with the first recorded dispute between shareholders and directors of the Dutch East India Company. In the US, early corporations had superior governance to those in the late 19th and early 20th centuries due to internal checks and balances. After several corporate scandals in the early 2000s, interest in governance increased and led to the passage of the Sarbanes-Oxley Act of 2002. The 1997 East Asian Financial Crisis highlighted weaknesses in corporate governance mechanisms in countries like Thailand and South Korea. Saudi Arabia has also made progress implementing appropriate governance with the issuance of a code in 2006.

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Alfafara, Patricia Althea

Allequir, Kristine Mae


Dumaboc, Von Neltricia
Macasusi, Alea Mae
Tero, Jeda Marie
HISTORY OF CORPORATE GOVERNANCE
The early history of corporate governance can be traced in the 17th-century Dutch Republic.
It was the first recorded corporate governance dispute in history took place in 1609 between the
shareholders/investors (most notably Isaac Le Maire) and directors of the Dutch East India
Company (VOC), the world's first formally listed public company

United States of America


The governance of early U.S. corporations, of which over 20,000 existed by the Civil War of
1861-1865, was superior to that of corporations in the late 19th and early 20th centuries because
early corporations governed themselves like "republics", replete with numerous "checks and
balances" against fraud and against usurpation of power by managers or by large shareholders.
(The term "robber baron" became particularly associated with US corporate figures in the Gilded
Age - the late 19th century.)

In the immediate aftermath of the Wall Street Crash of 1929 legal scholars such as Adolf
Augustus Berle, Edwin Dodd, and Gardiner C. Means pondered on the changing role of the
modern corporation in society. From the Chicago school of economics, Ronald Coase introduced
the notion of transaction costs into the understanding of why firms are founded and how they
continue to behave

US economic expansion through the emergence of multinational corporations after World War II
(1939-1945) saw the establishment of the managerial class. Several Harvard Business School
management professors studied and wrote about the new class: Myles Mace (entrepreneurship),
Alfred D. Chandler, Jr. (business history), Jay Lorsch (organizational behavior) and Elizabeth
MacIver (organizational behavior). According to Lorsch and MacIver "many large corporations
have dominant control over business affairs without sufficient accountability or monitoring by
their board of directors”

In the 1980s, Eugene Fama and Michael Jensen established the principal–agent problem as a way
of understanding corporate governance: the firm is seen as a series of contracts.
In the period from 1977 to 1997, corporate directors' duties in the U.S. expanded beyond their
traditional legal responsibility of duty of loyalty to the corporation and to its shareholders

In the first half of the 1990s, the issue of corporate governance in the U.S. received considerable
press attention due to a spate of CEO dismissals (for example, at IBM, Kodak, and Honeywell)
by their boards. The California Public Employees' Retirement System (CalPERS) led a wave of
institutional shareholder activism (something only very rarely seen before), as a way of ensuring
that corporate value would not be destroyed by the now traditionally cozy relationships between
the CEO and the board of directors (for example, by the unrestrained issuance of stock options,
not infrequently back-dated).

In the early 2000s, the massive bankruptcies (and criminal malfeasance) of Enron and
Worldcom, as well as lesser corporate scandals (such as those involving Adelphia
Communications, AOL, Arthur Andersen, Global Crossing, and Tyco) led to increased political
interest in corporate governance. This was reflected in the passage of the Sarbanes-Oxley Act of
2002. Other triggers for continued interest in the corporate governance of organizations included
the financial crisis of 2008/9 and the level of CEO pay.

East Asia
In 1997 the East Asian Financial Crisis severely affected the economies of Thailand, Indonesia,
South Korea, Malaysia, and the Philippines through the exit of foreign capital after property
assets collapsed. The lack of corporate governance mechanisms in these countries highlighted
the weaknesses of the institutions in their economies.

Saudi Arabia
In November 2006 the Capital Market Authority (Saudi Arabia) (CMA) issued a corporate
governance code in the Arabic language. The Kingdom of Saudi Arabia has made considerable
progress with respect to the implementation of viable and culturally appropriate governance
mechanisms (Al-Hussain & Johnson, 2009).

Al-Hussain, A. and Johnson, R. (2009) found a strong relationship between the efficiency of
corporate governance structure and Saudi bank performance when using return on assets as a
performance measure with one exception - that government and local ownership groups were not
significant. However, using stock return as a performance measure revealed a weak positive
relationship between the efficiency of corporate governance structure and bank performance

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