This chapter discusses the overall importance of both corporate and IT governance, and demonstrates that IT governance is a very important subcomponent of corporate governance. The authors present a framework, based upon a framework previously presented by Weill and Ross (2004), which should facilitate a strong understanding of the different factors and mechanisms that impact firm governance. A number of interesting empirical results relating to these governance mechanisms are presented within the context of the framework. Finally, the chapter presents a number of examples that link corporate and IT governance. In presenting those linkages, the authors identify a number of areas that should provide fruitful avenues for researchers to explore IT governance as it relates to corporate governance, and vice versa.
Background On The Increasing Interest In Governance
Researchers in accounting and finance have addressed topics related to the governance of corporations with increasing frequency for over 30 years, but the topic achieved a much broader following in the mainstream media as a wave of accounting scandals were uncovered in 2001 and 2002. The discovery of significant management malfeasance at multiple large U.S. corporations shook the confidence of investors in U.S. markets: the S&P 500 fell 16% in the first six months of 2002 while the tech-heavy NASDAQ fell 36% (Weill & Ross, 2004). The collapse of energy giant Enron in the fall of 2001 is perhaps the most infamous case of financial malfeasance in U.S. history, and the indictment of Enron’s auditor, Andersen, led to the uncovering of a number of other high-profile fraud cases, when accounting problems were revealed at several former Andersen clients under the scrutiny of the companies’ new auditors. The unprecedented number of high profile accounting scandals shook investor confidence and brought strong pressure to bear on the U.S. government. The government responded in July 2002 with the passage of the Sarbanes-Oxley Act of 2002 (“SOX”), designed to enhance financial reporting standards for U.S. public companies.