Improving corporate governance requires important steps that are not covered by the growing number of rules and guidelines for corporate governance. The most important step is to create a climate of trust and candor. In the 1980s and 1990s, shareholder activists, accountants, lawyers, and analysts highlighted the importance of independent directors, audit committees, ethical guidelines, and other structural elements that could help ensure that the board did its job. The article presents various examples to show the evolving nature of corporate governance.

As the subject of corporate governance becomes more relevant and important than ever before, we must not mistake the woods for the trees. We must remember that many of the companies in the US which ran into big trouble, had had all the corporate governance mechanisms in place, at least on paper. For example, the Enron board was a model board. When Enron declared bankruptcy, it was in full compliance with the governance provisions of the much publicized Sarbanes-Oxley Act, with the exception of loans to some corporate officers.

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