The Role of the Government: Legislation and Regulation

The often discussed and much criticized role of the government in regulating the corporate has gained all the more importance in these changing economic times. It’s time that the governments took more active role in regularizing the corporate through necessary means as we have learnt the painful way that the corporate crimes or the white collar crimes as they are called not at all victimless. So, if an old employee losses all his pension and savings on account of a corporate fraud committed by his organizations, the ramifications are long term. The mere wrist slapping exercise and sometimes even bail out that the government finances for erring corporate, surely does not act as a deterrent for others.

The very complex nature of the government and corporate can be clearly studied in the ongoing crisis in the European Union where the question of whether to use tax payers money to bail out Greece’s economy has become a political decisions rather than a business one. So what is the alternate path? Allowing self regulation by organization means making fox the shepherd, while on the other hand, going by the rule book approach of the US government has also been under much criticism, more so after the current financial crisis begun.

The other aspect of the scenario is the fact that fines are considered to be a part of doing business by the corporate, and the civic penalties that are occasionally levied against them is hardly enough to set example. The criminal sanctions against corporate are not a common phenomenon and the experts believe that can be more potent in deterring corporate misconduct. However, the other side of the coin is the fact that most of the regulating authorities like SEC etc have no authorities to impose criminal sanctions against corporate. Also, the penalties and fines bring no respite to the employees, shareholders and communities. [Recall the Bhopal Gas Tragedy]. Reasonably evaluated criminal and civic sanctions in a mix as appropriate can help address the issue.

The choice of going after the corporation or people, who have been involved in the misconduct, is another important consideration. A rather fair and objective view of this issue is that if the organization has a proper system of safeguards and checks in systems and processes and if the misconduct profits just one person, in this case even the corporate becomes a victim. For such situations a single person can be accused of embezzlement and liable for prosecution however if the fraud is at a larger level involving more people, the situation becomes complex, whether to hold liable the board members and senior leaders for failing to ensure the prevention.

The recent legislative development has come up with a guideline for the corporate:

  • Code of Ethics
  • Certification of financial information by the CEO and the CFO
  • Provision and protection of whistleblowers of misconduct

The government should also ensure that there are not too many agencies to act as enforcement authorities as this may lead to conflict of interests.


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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.


Corporate Governance