Repeated failures in corporate governance have led consumers to lose trust in big business, according to a new report.
The ESG – Governance Factors report, published by Just Food‘s parent GlobalData, outlines that governance dictates “how a company’s internal controls are used to inform business decisions, comply with the law and meet moral obligations to external stakeholders”.
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The report points to instances of aggressive tax avoidance, corruption, excessive executive remuneration and relentless lobbying as examples of corporate governance failures that have had a detrimental effect on public perception. Indeed, it notes that poor governance practices are at the root of many corporate scandals, which have a direct impact on the reputations of the businesses involved and the business as a whole.
Among the notable recent examples of such scandals given in the report are the failure of Boeing’s board to hold management accountable for a deterioration of controls around safety standards, leading to a 32% drop in share price in 2024; the defrauding of FTX investors by the company’s founder Sam Bankman-Fried as a result of lax governance procedures; and the collapse in value of Byju’s contributed to by an opaque management structure.
Of the extent to which trust in big business has been eroded as a result of such corporate governance failures and scandals, GlobalData associate project manager and report author Pinky Hiranandani commented: “Public confidence in big business has never been particularly high, but there is growing scepticism towards large corporations. Companies like Boeing and the Post Office have been damaged reputationally. They have also suffered financially; safety issues at Boeing caused a 32% drop in its share price in 2024.
“There’s also a big question around how much attention investors are giving to governance factors. Many companies with governance problems, such as FTX, Byju’s, Binance and Boeing, should have been under more pressure from investors to resolve these issues. Investors should be conducting much more thorough due diligence of companies’ governance practices. FTX continued to raise capital despite a total lack of internal controls and a resistance to appointing external directors. Investors are losing out on returns by failing to ask fundamental questions about corporate governance.”
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By GlobalDataDespite a proliferation of corporate governance scandals playing out in public, GlobalData analysis suggests falling interest in the area among businesses. Mentions of governance in company filings globally rose continuously from 2016 before peaking in 2021 and beginning to fall. The declining trend suggests companies are paying governance decreasing attention at a time when it is increasingly important.
For businesses seeking to avoid failures and scandals, GlobalData's report breaks down governance into four pillars – corporate structure; risk management; corruption and bribery; and ethics – and it offers recommendations for mitigating risk.
It advises that companies should adopt a structure that ensures senior management is accountable to stakeholders; engage regularly with stakeholders and identify and manage risks arising from cybersecurity; adopt internal controls and whistleblowing policies to prevent bribery, money laundering and tax evasion; and avoid anti-competitive behaviours, ensure regulatory compliance and implement an artificial intelligence governance framework for the responsible use and development of the technology.
Changes to corporate governance
In the context of these points, Hiranandani notes that the need for such robust corporate governance measures has evolved significantly in recent years, in particular as a result of regulatory, economic and technological pressures.
“Traditionally, governance primarily focused on financial reporting and protecting shareholder interests, with minimum regulatory oversight,” she said. “However, high-profile scandals such as Enron in 2001 and WorldCom in 2002 led to regulations such as Sarbanes-Oxley in 2002, shifting the focus from just financial reporting and protecting shareholder interests to accountability, transparency, and internal controls.
“The 2008 financial crisis further highlighted the lack of financial governance. It prompted reforms such as the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which aimed to improve board oversight and accountability.
“In recent years, high-profile corporate governance scandals, such as Byju’s fall and FTX's collapse, have led to increased stakeholder activism. Investors, employees, customers and regulators demand transparency in ESG disclosures. Also, the development of reporting standards such as the Task Force on Climate-Related Financial Disclosures and the EU’s Corporate Sustainability Reporting Directive have accelerated the need for robust corporate governance.
“In the future, governance will continue to evolve as the rise of AI and other technologies increases the complexity of governance. Companies that fail to adopt the highest standards of AI governance will face substantial reputational and financial risk. Implementing an AI governance framework and ensuring it covers transparency, accountability, safety, reliability, and social impact will be imperative.”
