Corporate Governance

Purpose – The objective of the study is to analyze corporate governance practices of Canadian companies in the post-Enron period. The attempt is to investigate whether the convergence phenomenon evidenced in prior studies is limited to the minimum mandatory requirements imposed by regulators or reflects a real behavioral transformation.

Design/methodology/approach – Changing governance structure might be slow except in times of financial crisis, increased public scrutiny and reforms. These conditions are met in the post-Enron period (2002 to 2005) where major reforms have been launched including the Sarbanes-Oxley Act (SOX) in the USA and Bill 198 in Canada. The authors expect changes in corporate governance to be more important during this period, therefore, enhancing the robustness and reliability of their results. They measure corporate governance on a global scale, relying on the ROB index published by the Globe and Mail. The index distinguishes between four blocks of corporate governance, namely, board composition, compensation, shareholder rights, and disclosure.

Findings – The present results show signs of convergence. However, Canadian companies improved their corporate governance practices in the post-Enron period mainly in areas mandated by regulation. This includes provisions related to the composition, attributes and working of the board of directors and board committees. No significant improvement is found in non-regulated governance best practices.

Research limitations/implications – Overall, the findings suggest a lack of real behavioral change in corporate leaders. Instead, convergence in corporate governance appears to be the result of a box-checking exercise.

Practical implications – If corporate governance is about ethical conduct and stems from the culture and mindset of management, these results show that corporate governance cannot be regulated by legislation alone.

Originality/value – This study goes beyond the minimum mandatory requirements and looks into compliance of non-regulated provisions as well. Examining the evolution of corporate governance practices on these two fronts helps to further investigate the extent and nature of convergence.