There is a long history of governance reforms that target corporate boards by mandating specific committee structures and director-type requirement. The Securities and Exchange Commission and the New York Stock Exchange first advocated for separate audit committees following the McKesson & Robbins scandal of 1938 (Birkett, 1986). In the 1970s, in response to widespread bribery by U.S. corporations in foreign countries, the SEC recommended that firms maintain an independent director majority on audit and nominating committees, and the NYSE updated its listing standards to require that firms maintain audit committees (Dundas and George, 1980). Several high-profile corporate failures in the early 1980s brought about the Treadway Commission, whose report was a factor when the major national exchanges recommended audit committee independence (Reeb and Upadhyay, 2010). In the early 2000s, the boards of Enron, Worldcom, Tyco and Parmalat, among others, were blamed for corporate malfeasance. Intending to prevent similar governance failures in the future, the Sarbanes-Oxley Act of 2002 (SOX) and the revised NYSE and NASDAQ listing standards were put in place.
Clearly, regulators believe that board structure is an important determinant of corporate governance. This has not been lost on economic and legal researchers who, for example, have found that independent audit committees can improve governance outcomes. However, corporate scandals have demonstrated a remarkable resilience to governance reforms. While reforms may appear to simply codify board characteristics, they do so by altering the nature of authority within the board.