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AOL/Time Warner and WorldCom:Corporate Governance and the Effects of the Deregulation Paradox
Unformatted Document Text:  24 Rethinking Corporate Governance Deregulated markets do many things well. But they are not effective at policing themselves (Kuttner, 2002). In the aftermath of the AOL/Time Warner merger and WorldCom debacle, researchers, policy analysts and government officials are recognizing that corporate governance requires a new level of activism in monitoring the actions of CEOs who would propose high risk strategies and/or senior managers engaged in corporate misconduct. Several have proposed regulatory and business reforms that would improve corporate governance. The solutions vary in size and scope ranging from Turnbull (2000) who proposes an alternative form of capitalism to Salmon (2000) who prescribes a series of incremental changes as a remedy. Table 1. represents an amalgam of proposed regulatory and business reforms reflecting the thinking of several different writers. Table 1. Principles of Effective Corporate Governance 1. Board Independence: No more than two directors should be current or former company executives. No board member should be engaged in direct business dealings with the said company or accept consulting fees for services rendered beyond that of an appointed board member. 2. Make CEOs More Accountable: The SEC should endorse national guidelines for all publicly traded companies doing business in the US. Among the provisions CEOs and CFOs must personally certify the accuracy in reporting of the income statement. 2 2 This provision is now part of H.R. 3763, the Sarbanes-Oxley Act of 2002 which was signed into public law 107-204 by President George Bush on July 30, 2002. Sec. 906 requires that each periodic financial report to the SEC be accompanied by a written statement signed by the CEO and CFO that certifies that the periodic report containing the financial statements fully complies with securities law. Penalties for certifying a misleading or fraudulent report shall be a fine up to $1 million, or imprisonment up to 10 years or both. Also noteworthy, is Sec. 802 which amended the US Code to provide new penalties for the destruction, alteration and falsification of records in Federal investigations and bankruptcy.

Authors: Gershon, Richard. and Alhassan, Abubakar.
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24
Rethinking Corporate Governance
Deregulated markets do many things well. But they are not effective at policing

themselves (Kuttner, 2002). In the aftermath of the AOL/Time Warner merger and

WorldCom debacle, researchers, policy analysts and government officials are recognizing

that corporate governance requires a new level of activism in monitoring the actions of

CEOs who would propose high risk strategies and/or senior managers engaged in corporate

misconduct. Several have proposed regulatory and business reforms that would improve

corporate governance. The solutions vary in size and scope ranging from Turnbull (2000)

who proposes an alternative form of capitalism to Salmon (2000) who prescribes a

series of incremental changes as a remedy. Table 1. represents an amalgam of proposed

regulatory and business reforms reflecting the thinking of several different writers.
Table 1.
Principles of Effective Corporate Governance
1. Board Independence: No more than two directors should be current or former
company executives. No board member should be engaged in direct business dealings
with the said company or accept consulting fees for services rendered beyond that of
an appointed board member.

2. Make CEOs More Accountable:
The SEC should endorse national guidelines for all
publicly traded companies doing business in the US. Among the provisions CEOs and
CFOs must personally certify the accuracy in reporting of the income statement.
2
2
This provision is now part of H.R. 3763, the Sarbanes-Oxley Act of 2002 which was signed into public
law 107-204 by President George Bush on July 30, 2002. Sec. 906 requires that each periodic financial
report to the SEC be accompanied by a written statement signed by the CEO and CFO that certifies that
the periodic report containing the financial statements fully complies with securities law. Penalties for
certifying a misleading or fraudulent report shall be a fine up to $1 million, or imprisonment up to 10
years or both. Also noteworthy, is Sec. 802 which amended the US Code to provide new penalties for
the destruction, alteration and falsification of records in Federal investigations and bankruptcy.


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