The role of compliance committees in corporate governance
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In the wake of recent corporate misconduct, corporate governance has been receiving increasing attention. With the passage of the Sarbanes-Oxley Act of 2002 and other important judicial decisions such as In re Caremark International, Inc. (1996), directors are increasingly being held responsible for their failure to ensure adequate systems are in place to prevent corporate misconduct. In January 2005, settlement agreements were reached requiring former directors of WorldCom and Enron to pay millions of dollars from their personal assets. This dissertation examines the use of compliance committees in corporate governance. Distinct from an audit committee, a compliance committee is comprised of members of the board of directors who are assigned the task of ensuring that the corporation abides by all applicable laws, rules, regulations and guidelines. Data collected from proxy statements of S&P 500 firms show an increase in the use of such committees over the past decade, especially in the health care and materials industries. Both size and industry are found to be significant factors in the use of compliance committees. In addition, based on recent studies that have documented an association between corporate governance and firm performance, the association between compliance committees, frequency of meetings, and independence of committee members with firm performance is investigated using several measures including Tobin's Q, stock returns, and measures of profitability such as one-year sales growth and return on assets. However, contrary to existing literature, results fail to show any associations with performance measures.