Observations on the state of shareholder participation in corporate governance;

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Observations on the State of Shareholder Participation in Corporate Governance
Barbara Leventhal
Securities and Exchange Commission*
I was very pleased to receive Professor Stettler's invitation to speak to you tonight about corporate governance. The subject is a timely and fascinating one, with more serious implications for the accounting profession than are generally recognized. In an obvious sense, there is a direct relationship between the structure and composition of corporate boards and the ability of auditors to maintain their independence. This relationship has been acknowledged by Congress, the Commission, and the profession. It is well established, as was noted by the Commission on Auditors' Responsibilities last January, that "[t]he board of directors, with outside members and an audit committee when ap­propriate,
is the best vehicle for achieving and maintaining balance in the rela­tionship
between the independent auditor and management." More recently, the AICPA has demonstrated its agreement with this proposition by consider­ing
whether there is a need for independent audit committees as a condition for an independent audit.
Other Calls for Reform
Less obvious perhaps but equally significant is the direct parallel between the issues facing the accounting profession and those facing the corporate com­munity.
In both cases perceived problems and a decline in public confidence have given rise to Congressional concern and calls for reform. Radical but similar solutions, such as federal licensing of accountants and federal chartering of companies have been suggested. The question which must be answered in both cases is not whether change must come but how it will come—and whether the solutions will be supplied by the private sector or whether they will be imposed by government.
In recent months, there has been an incredible amount of activity in the field of corporate governance. In addition to the Commission's re-examination of its rules relating to shareholder communications, shareholder participa-
* The Securities and Exchange Commission, as a matter of policy, disclaims responsibility
for any private publications by any of its employees. The views expressed herein are those of
the author and do not necessarily reflect the views of the Commission or of the author's
colleagues on the staff of the Commission.
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