Agency Assurance - Universität St.Gallen

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oversight. However, that inheritance was being corrupted through, among other
systemic conflict of interest factors, inbreeding of close directors’ relationships with
company management and intricate director interlocks across organizations.
In the 1990’s themes of business ethics, social and environmental responsibility, board
governance renewal, and like reforms were prominent in corporate director circles.
All of these themes added constructively to discussion in the self-regulation
governance environment. Leading company executives appeared to embrace these
ideals and the instructive benefits arising from them. Were the intentions displayed by
these executives disingenuous Apparently, they were in a number of high profile and
highly damaging cases, especially Kenneth Lay at Enron, Dennis Kozlowski at Tyco,
Sam Wacksal at ImClone Systems, Calisto Tanzi at Parmalat, and Manfred Schmider
at FlowTex, among countless others. Thankfully, the seriousness with which these
reforms were addressed and the sincerity evidenced from numerous change initiatives
adopted had a profoundly positive effect on many organizations. Unfortunately, the
clamour arising from the misdeeds of a significant minority has all but drowned out
the quietly sound stewardship of the majority of corporate leaders. From an economic
and social view as well, the impact felt by the public from the fallout of the actions of
this significant irresponsible minority is alarming.
1.2.3 High Stakes High Risk-Taking
Conflicts of interest between management of large organizations and their shareholder
investors have been identified as an issue as early as Adam Smith’s era of the mid-18 th
century. Conflicts of shareholder interests versus those of management were
elaborated upon by Adolph A. Berle and Gardiner C. Means, Jr. in the early 1930’s,
when they defined the problem of agency in modern corporations as the separation of
ownership from control. The original SEC regulations were put in place at that time
specifically to guard against management expropriating shareholder wealth and
misleading investors with partial, inaccurate, or false disclosures. Those regulations
served the public substantially unchanged for almost 70 years until the Sarbanes-Oxley
Act was passed in mid-2002.
In fact, a great amount of trust and confidence existed in the system of checks and
balances which had evolved over centuries, with significant dependence on selfgovernance.
Strong faith was placed, apparently rationally, in the management and