Page 71 - Microsoft Word - 00 P1 IW Prelims.docx

Corporate governance approaches

1.4 Arguments in favour of a rules-based approach

Organisation’s perspective:

 Clarity in terms of what the company must do – the rules are a legal requirement,
clarity should exist and hence no interpretation is required

 Standardisation for all companies – there is no choice as to complying or
explaining and this creates a standardised and possibly fairer approach for all
businesses

 Binding requirements – the criminal nature makes it very clear that the rules must
be complied with.

Wider stakeholder perspective:

 Standardisation across all companies – a level playing field is created.

 Sanction – the sanction is criminal and therefore a greater deterrent

 Greater confidence in regulatory compliance.

1.5 Arguments against a rules-based approach

Organisation’s perspective:

 Exploitation of loopholes – the exacting nature of the law lends itself to the
seeking of loopholes

 Underlying belief – the belief is that you must only play by the rules set (i.e. no
'buy-in' is required)

 Flexibility is lost – there is no choice in compliance to reflect the nature of the
organisation, its size or stage of development

 Checklist approach – this can arise as companies seek to comply with all
aspects of the rules and start ‘box-ticking’.

65