Corporate governance refers to the relationships among the statutory participants in a juridical entity: the founders, shareholders, directors, officers, employees and agents. For publicly traded enterprises in the United States, “corporate governance” epitomizes the focus of the Sarbanes-Oxley Act of 2002 upon failures by such enterprises to maintain the necessary levels of accountability of the board of directors and senior executives for the misdeeds of their own colleagues and the transparency of business processes to detect and deter such misdeeds. A failed corporate governance structure follows logically from a failed chain of command and an inability of the Chief Executive Officer to implement and manage that chain of command.
Pervasive corporate governance principles permeate the outsourcing services contract. Suppliers of goods and services are called upon to implement the enterprise customer’s own minimum standards to enable the accountability and transparency of internal audit and controls to be extended across the supply chain. As a result, the enterprise customer’s corporate governance needs will typically be reflected in “flow down” provisions applicable to the service provider’s operations.
For service providers, corporate governance compliance is a mixed blessing. Different customers will manifest different policies for corporate governance compliance. As a result, the service provider might preempt some concerns by adopting its own version that could then be accepted in the due diligence and supplier selection process.