A Danger Recognized, but not Avoided

Mismanagement and accounting scandals at publicly traded companies have given lawmakers around the world reasons to cultivate more transparency. Laws like the Sarbanes-Oxley Act in the United States and the German law on monitoring and transparency in companies (KonTraG in its German abbreviation), as well as international accounting standards (IAS), have been in force for several years. Just what have they accomplished?

Since the creation of KonTraG and the Sarbanes-Oxley Act, the term "corporate governance” has enjoyed a boom. Corporate governance is the goal: laws and directives that bind companies to provide suitable and responsible management. The goal of such measures is primarily transparency for investors, owners, or creditors on a firm’s actual value, the risks it faces, and its expected development. Ultimately, they serve as a check to determine if management actually works in the interests of the company. Mismanagement and the accounting scandals that ruined investors were the triggers for such strict regulations.

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