Corporate Governance and Accountability

Running head: CORPORATE GOVERNANCE AND ACCOUNTABILITY
Corporate Governance and Accountability
Name of the Student
Name of the University
Author Note

1CORPORATE GOVERNANCE AND ACCOUNTABILITY
The concept of corporate governance is about exercising power over the business
enterprises. A corporate governance framework aims at establishing standards of corporate ethics
purporting to reduce corrupted and illegal corporate practices while striving to preserve a fair
business environment. In the corporate sector, it is important for an organization to incorporate a
corporate governance framework that establishes an effective risk management structure to avert
any risk that may affect the confidence of the investors and creditors of the company (Aalbers
2018). Corporate transparency, proper disclosure and the corporate accountability have become
more essential in the modern corporate sector as stakeholders are demanding better financial
reporting and transparency along with other good corporate governance practices through their
board and management processes. This essay entails discussion about the significance of an
effective corporate governance framework and its essential elements disclosure, transparency
and company accountability. It also discusses about the implication of such essential elements on
the societal stakeholders. The transparency and timely disclosure of financial reporting of a
company is most important as such, information enables stakeholders to understand the financial
condition of the company (Armstrong et al. 2016). The involvement of multinational
corporations in corrupt practices like secrecy jurisdiction often causes evasion of tax, financial
regulations, corporate governance rules etc. These activities not only affect the reputation of the
corporations but also affect the economy of the relevant jurisdiction and global economy as well.
The term ‘secrecy jurisdiction’ is often used interchangeably with the term ‘tax haven’.
Although there is a lack of any precise definition for the term, a secrecy jurisdiction usually
facilitates corporate entities or people to damage rules, regulations, laws and regulations of other
jurisdictions elsewhere while using secrecy as a prime tool (Zucman 2015). The Financial
Secrecy Index concentrates on secrecy, which includes escape from disclosure, but these

2CORPORATE GOVERNANCE AND ACCOUNTABILITY
jurisdictions often propose escape from financial regulation, tax, criminal laws, corporate
governance rule, etc. The offshore system is an interrelated ecosystem involving different
jurisdictions that provides the corporations with facilities to escape from disclosure.
It has also been found that secrecy jurisdictions entail ‘captured states’ wherein the
financial services are deliberately protected from the domestic political opposition. Secret capital
always flows from poor to rich nations and the secrecy jurisdictions are significantly situated in
rich nations (Kemme, Parikh and Steigner 2017). For instance, the United States is a significant
secrecy jurisdiction having a couple of minor satellites. The United Kingdom also plays a
significant role in the system, is possibly the most crucial player of all, and is responsible for
several big satellite tax havens, which includes Bermuda, Cayman Islands and Jersey. Further,
continental European pole is highly significant and includes Germany, Australia, Cyprus,
Luxembourg etc.
According to Financial Secrecy Index as released by the Tax Justice Network (TJN),
the United States is considered as the second largest contributor to financial secrecy globally. As
explained above, the concept of secrecy jurisdiction refers to the facility that is provided to
people enabling them to hide income from the authorities to evade financial regulations or taxes,
legalize profits from crime, sponsor terrorism financially or violate the laws (Bennedsen and
Zeume 2015). The United States is said to be the largest contributor to financial secrecy in the
world than any other nation mainly for two reasons. Firstly, the country has the largest share of
2.23 percent of the global market for offshore financial services. Secondly, several US state
support financial secrecy by permitting individuals to incorporate business organizations without
satisfying the requirement to provide real identifying information. This leads to stacking of huge

3CORPORATE GOVERNANCE AND ACCOUNTABILITY
monetary amount in the shell companies in the United States, which cannot be linked to any
individual anywhere in the world (Soriano 2015).
The most significant form of secrecy laws identified by the Financial Secrecy Index is
the permission granted to individuals to create anonymous shell corporations. When a company
is incorporated in the United States, it is not mandatory for the true owner or operator of the
company who is known as the beneficial owner to disclose his or her identity to any public or
government authority (Soriano 2015). This implies that criminals have free reign to develop shell
companies without having any concern regarding the fact that any criminal activity conducted by
the company shall not be traced back to them. In 2010, the United States has passed the
landmark Foreign Account Tax Compliance Act [FATCA] that had stipulated a global standard
for bank transparency.
However, it is reported that almost 50 largest companies including Walmart, Microsoft
and Apple are involved in stacking about $1.6 trillion in offshore tax havens for the purpose of
reducing their US tax burden (Aalbers 2018). The corporate giant Microsoft is engaged in
stashing a significant sum of $108 billion in offshore tax havens. Microsoft is considered as the
third offender amongst the fifty biggest enterprises of the country that has been involved in tax
havens. A direct relationship exists between the tax avoidance and the political lobby that is
involved in facilitating such tax avoidance. As the tax returns from the multinational companies
is less than their potential, government is often left with two options, firstly, it either reduces the
essential investments that is required to reduce deprivation and inequality or it covers the
deficiency by levying higher taxes upon the small businesses and working families within the
domestic economy (Bennedsen and Zeume 2015.). Nevertheless, under both the circumstances,