QUESTION ONE

Corporate governance is said to be the way companies are run and controlled. The principle behind corporate governance is that owners of companies employ managers to take care of their interests. However, in situations like this a principal and agent relationship is entered into between the shareholders of the company as owners of the resources and the managers who work for them and execute the daily running of the company.

There are usually challenges in running companies whose owners are not available everyday resulting in moral hazards such as remoteness, complexity of operations, conflict of interest and consequence of error among others.

Corporate governance was largely for a long time ignored until the collapse of Enron an energy giant in the United States of America in 2000/2001 after taking advantage of the weaknesses in the principal/agent relationship process.

Required:

Discuss and describe any four (4) fundamental changes that were brought by the Sarbanes Oxley Act of 2002 that introduced the best practices regarding the management of corporate institutions after the collapse of Enron in 2001. (25 marks)