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CHAPTER ONE

INTRODUCTION

1.1  Background to the Study

Globalization and Information and Communication Technology (ICT) took the world by storm and have reduced the world to a global village. This has given rise to the continuous integration of the world economy and capital markets which has in turn given rise to increase in the interdependence of international financial markets.  As a result of this, there is increased mobility of capital across boundaries of the globe.  Therefore, in order to ensure and sustain investors’ confidence in the capital market, the issue of corporate governance has now been brought to the front burner because that is the only way corporate financial reporting can be seen to be transparent (Garuba &Donwa, 2011). Corporate governance could be thought of as the combined statutory and no statutory framework within which boards of directors exercise their fiduciary duties to the organizations that appoint them. The key issue is that ‘directors owe to shareholders, or perhaps to the corporation, two basic fiduciary duties: the duty of loyalty and the duty of care’.The primary goal of corporate governance is to enhance the value of a company through ethical behavior, espousing a policy of openness and fairness and ensuring informed decision making throughout the company.Unfortunately, the center of corporate ethics—the board of directors—in certain cases became a magnet for unethical practices.Blinded by the glare of a rapidly growing stock market, pressured by stockholders for ever-increasing returns, and led by executives seeking to maximize bonuses based on stock performance, certain boards of directors and audit committees failed to constrain “creative” accounting to keep up their earnings numbers.It must have seemed to some directors that the investing public really did not care about issues such as executive compensation, as long as they made their double-digit returns.  

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