Synopses & Reviews
Praise for Corporate Governance Regulation
"Nicholas Vakkur has written an excellent critique of Sarbanes-Oxley and has made a very useful contribution, correctly pointing out that Sarb-Ox requirements would not have prevented some of the staggering corporate stock market losses that preceded the adoption of those requirements, or those that have come sincein part, because they were caused by intentional management activities, not unintended and undetected failures in control. As Vakkur points out, Sarb-Ox is 'impotent in the face of managerial override.'"
Robert Grady, Chairman, New Jersey State Investment Council; Managing Partner, Cheyenne Capital Fund; former chairman, National Venture Capital Association; Lecturer in Public Management, Stanford Graduate School of Business; and member of the Management Committee, The Carlyle Group
"Professor Vakkur makes a timely and vital contribution, showing how transparency can be achieved through developing an ethical climate rather than through a focus on regulation. This makes it essential reading for policymakers, students, and those in the corporate world."
Des Laffey, Senior Lecturer, Kent Business School, UK; Co-Editor in Chief, Journal of Strategic Management Education
"For those who seek to be informed about the need to change accounting . . . this is a promising and potentially valuable study addressing issues that are timely and relevant."
Gary John Previts, E. Mandell de Windt Professor, Case Western Reserve University
"This book is unique, as it seeks a restoration of the prior focus on ethical development (e.g., common within the U.S. prior to the 1950s), that trumps complex legal machinations as an efficacious means of achieving 'transparent' financial markets."
Teresa T. Kaldor, PhD, former task manager of public sector reforms, USAID project (Manila, Philippines)
"In this era of heightened regulation, we must critically analyze previous regulations to understand whether the objectives have been achieved, to improve or eliminate existing regulations, and to serve as a guide as more regulations are promulgated. Professor Vakkur's analysis provides an innovative and fresh look at whether Sarbanes-Oxley achieved its objectives of corporate transparency and accountability."
Michael H. Messaglia, Partner, Krieg DeVault LLP
"Vakkur's extensive research, valuable insights, and evaluation tools will help companies and their stakeholders."
Timothy H. Carmon, CPA financial reporting/risk manager for a leading Fortune 500 firm
"The impact of comprehensive financial regulations, properly envisaged at the global level, is not confined to the home country, write Nicholas Vakkur and Zulma Herrera. . . . A useful read for financial researchers."
D. Murali, Deputy Editor, The Hindu Business Line
The recent global financial crisis underscores the degree to which effective regulatory policy is critical to the continued health of the economy. Sounding the cause for alarm, this book suggests that the modern era of U.S. corporate governance regulation—which began with Sarbanes Oxley and has been marked by a conspicuous lack of efficacy and enormous costs—has lost its moorings. A litany of well-intended econometric analyses has failed to facilitate regulatory progress.
To remedy this problem, the authors utilize an eclectic, analytic framework to conducts the most comprehensive analysis of Sarbanes Oxley-era regulation to date. The result is a nuanced, conceptual level understanding of the current state of regulatory policy. Whereas its implications are likely to prove controversial for decades to come, effectively underscored is the immediate, dire need for fundamental regulatory reform, both in terms of policy content as well as policymaking process, which will be found in this book.
In particular, this book aims to impart a nuanced understanding of the following issues to the U.S. and global economy:
• At a fundamental level of analysis, why is the regulation of business firms fundamentally necessary, and what is its primary objective?
• Why are efforts to regulate the corporation fraught with immense difficulty? (e.g., why is the King Canute approach to regulation doomed to fail? What are the natural limits of regulatory efforts?) What is corporate accounting and what is its nature? What are the dominant weaknesses of U.S. GAAP?
• What is regulatory failure? (Is it a failure of regulatory policy, of corporate agents, or perhaps both?)
• What is the process by which major policies, within a contemporary U.S. setting, become enacted law? Is it ideal, or is there significant room for improvement? If so, how?
• Stakeholder analysis: What are the major effects of modern corporate governance regulation upon a) CEOs and executives and b) investors
• If regulation, as a defining characteristic of the modern epoch, is no longer adequately moored in rational considerations, by what forces is it actually being shaped? (Is this ideal or regrettable?)
Why U.S. corporate governance regulation has lost its way, and what must be done to improve it
Modern history persuasively demonstrates the inexorable link that binds comprehensive regulation to the global economy. This important book, rather than simply recount a litany of corporate governance failures, persuasively explains why, despite policymakers' best intentions, regulation has failed in the modern era. An objective study intended for a diverse readership, Corporate Governance Regulation unveils the underlying, root causes of regulatory failure. The result: A compelling and original analysis, broadly suited for a global audience of all backgrounds.
- Written by published, subject-area experts, the authors carefully delineate how U.S. corporate governance regulation, beginning with Sarbanes Oxley, lacks an adequate rational basis, as may be attributed to a non-existent policy dialogue
- The witnessed result: A conspicuous lack of regulatory efficacy, enormous costs, coupled with paltry benefits
- The focus is upon reigniting a stalled, non-productive policy dialogue, by eschewing stale, overly-polemicized arguments, as needed to develop a common ground
Drawing from an eclectic, analytic framework, governance experts Nicholas Vakkur and Zulma Herrera offer both the professional and global citizen alike a multi-dimensional understanding of issues critical to global economic health. Nuanced and persuasively argued, Corporate Governance Regulation represents a formidable catalyst in the elusive, ongoing quest for global economic stability.
As the world continues to dig out from beneath the rubble left by the 2008 global financial crisis, the basic notion that corporate governance regulation in the modern era has created more problems than it has solved is no longer controversial. Nevertheless, critical issues remain unaddressed: What type of reform is required? How should it be administered and by whom? Can the bitter partisanship that presently holds Washington in its grip, thwarting efforts at progress, be overcome?
Uniquely insightful and freshly provocative, Corporate Governance Regulation offers a comprehensive, nuanced view of the daunting regulatory challenges facing the global economy in the twenty-first century. Certain to prove a potent catalyst in the global quest for meaningful policy reform, this seminal work uncovers the fundamental roots of the regulatory crisis in plain terms, while deftly avoiding the political traps that have stymied progress to date. The result is a trenchant exploration of the most critical policy issues of the day, as intended for a diverse, global audience:
- What is the normative role and/or purpose for governance regulation, and what are its natural limits?
- What factors are responsible for the glaring regulatory deficiencies, as witnessed over the past decade?
- Is U.S. GAAP realistically capable of supporting the regulatory objective?
- Should instances of regulatory failure be defined in terms of specific policy weaknesses, corporate sloth, and/or other factor(s)?
Corporate Governance Regulation represents an indispensable manifesto for the modern global citizen who earnestly desires a fundamental restoration to commonsense policy. Employing an original approach to policy analysis, innovative scholars Nicholas Vakkur and Zulma Herrera cogently delineate how the modern era of U.S. corporate governance regulation has lost its moorings, rendering efforts counterproductive. The eclectic analytic framework introduced in this book permits a novel elucidation of the regulatory problem at the global level, underscoring the ruinous consequences likely to ensue from any refusal to abruptly change policy course. At the same time, the authors communicate hope for a beleaguered, global economy struggling to reassert itself in the face of a series of monumentally complex challenges
About the Author
NICHOLAS V. VAKKUR
is the founder of Vakkur.org, a non-partisan think tank that helps corporations manage risk while positively influencing corporate governance policy. Widely published in leading U.S. and international scholarly journals, Mr. Vakkur has been cited before the U.S. Supreme Court, the U.S. Senate, the U.S. Department of Justice, and various foreign entities; has been covered frequently in the news media; and has been invited to speak to Wall Street CEOs. He is an assistant professor of accounting at Trident University and has served as the CFO of a global nonprofit organization. Mr. Vakkur graduated summa cum laude from the University of Notre Dame and has a master's degree in public policy.
ZULMA J. HERRERA, while with Goldman Sachs, participated at a senior level in various mergers of global corporations. Ms. Herrera has worked in-house with the executive teams of two global corporations and has served in a variety of senior roles within the technology industry. A noted corporate governance scholar, Ms. Herrera serves as the CEO of Vakkur.org, which enables corporate clients to manage risk effectively. Ms. Herrera graduated with honors from the University of Notre Dame and is acquiring an MBA.
Table of Contents
CHAPTER 1 Virtue Lost 1
Methodological Limitations 4
The Modern Corporation and Virtue 5
The Policy Framework 26
CHAPTER 2 An Introduction to WorldCom: A Policy Primer 47
The Source of Conflict 50
Rules versus Laws 51
The Case for Intentionality 53
Regulatory Contribution 55
WorldCom as a Basis for the Sarbanes-Oxley Act 56
CHAPTER 3 The Enactment Process 59
The Enactment Process 62
The Law’s Effects 69
Current Arguments in Favor of the Sarbanes-Oxley Act 75
Institutional Precedents 78
CHAPTER 4 CEO Perception 81
Summary of Relevant Literature 82
Appendix to Chapter 4 89
CHAPTER 5 Sarbanes-Oxley’s Effect on Investor Risk 97
Extending CAPM 99
Evaluation of Risk 102
Estimation and Results 105
CHAPTER 6 An Audit of Sarbanes-Oxley 125
A Conceptual Foundation 126
Internal Controls 128
The Audit Framework 130
Effect on Unintentional Sources of Error 134
Effect on Corporate Malfeasance 138
CHAPTER 7 The Underlying Vision 149
Econometrics in Policy Analysis 149
A Model Predicated on ‘‘Unobservables’’ 151
CHAPTER 8 The Argument for Accountability 169
Professional Liability 170
Policy Misuse 172
The Case for Culpability 174
The Improbability of Accountability 177
CHAPTER 9 Why Sarbanes-Oxley? 183
The Port Huron Statement 190
Why Sarbanes-Oxley? 202
About the Authors 263