History

Corporate governance systems have evolved over centuries, often in response to corporate failures or systemic crises. The first well-documented failure of governance was the South Sea Bubble in the 1700s, which revolutionized business laws and practices in England. Similarly, much of the securities law in the U.S. was put in place following the stock market crash of 1929. There has been no shortage of other crises, such as the secondary banking crisis of the 1970s in the U.K., U.S. savings and loan debacle of the 1980s, the 1998 financial crisis in Russia and the global financial crisis in 2008. The history of corporate governance has also been punctuated by a series of well-known company failures. 

A Brief History of Corporate Governance

1600s: The East India Company introduces a Court of Directors, separating ownership and control (U.K., the Netherlands)

1776: Adam Smith in the «Wealth of Nations» warns of weak controls over and incentives for management (U.K.)

1844: First Joint Stock Company Act (U.K.)

1931: Berle and Means publish their seminal work «The Modern Corporation and Private Property» (U.S.)

1933/34: The Securities Act of 1933 is the first act to regulate the securities markets, notably registration disclosure. The 1934 Act delegated responsibility for enforcement to the SEC (U.S.)

1968: The EU adopts the first company law directive (EU)

1987: The Treadway Commission reports on fraudulent financial reporting, confirming the role and status of audit committees, and develops a framework for internal control, or COSO, published in 1992 (U.S.).

Early 1990s: Polly Peck (£1.3bn. in losses), BCCI and Maxwell (£480m) business empires collapse, calling for improved corporate governance practices to protect investors (U.K.)

1992: The Cadbury Committee publishes the first code on corporate governance; and in 1993, companies listed on U.K.’s Stock Exchanges are required to disclose governance on a «comply or explain» basis (U.K.)

1994: Publication of the King Report (S. Africa)

1994, 1995: Rutteman (on Internal Control and Financial Reporting), Greenbury (on Executive Remuneration), and Hampel (on Corporate Governance) reports are published (U.K.)

1995: Publication of the Vienot Report (France)

1996: Publication of the Peters Report (the Netherlands)

1998: Publication of the Combined Code (U.K.)

1999: OECD Publishes the first international benchmark, the OECD Principles of Corporate Governance

1999: Publication of the Turnbull guidance on internal control (U.K.)

2001: Enron Corporation, then the seventh largest listed company in the U.S., declares bankruptcy (U.S.)

2001: The Lamfalussy report on the Regulation of European Securities Markets (EU) is published

2002: Publication of the German Corporate Governance Code (Germany)

2002: The Enron collapse and other corporate scandals lead to the Sarbanes-Oxley Act (U.S.); the Winter report on company law reform in Europe is published (EU)

2003: The Higgs report on non-executive directors is published (U.K.)

2004: The Parmalat scandal shakes Italy, with possible EU-wide repercussions (EU).