1. Domination by a single individual:

A feature of many corporate governance scandals has been boards dominated by a single senior executive, with other board members merely acting as a rubber stamp. Sometimes, an individual may bypass the board to action their own interests. Even if an organization is not dominated by a single individual, there may be other weaknesses, such as the organization being run by a small group centered around the chief executive and chief finance officer. Appointments may be made by personal recommendation rather than through a formal, objective process.

2. Lack of involvement of the board:

Boards that do not meet regularly or fail to systematically consider the activities and risks of an organization are clearly weak. Sometimes, the failure to carry out proper oversight is due to a lack of information being provided or the directors lacking the knowledge or skills necessary to contribute effectively.

3. Lack of supervision:

Employees who are not properly supervised by the board can create large losses for the organization through their own incompetence, negligence, or fraudulent activity. Without proper oversight, employees may engage in activities that are detrimental to the company.

4. Poor oversight of accounts and audit:

A lot of governance guidance has been concerned with defining effective internal control. Inevitably, many companies involved in scandals have had glaring weaknesses in internal control, weaknesses that have not been picked up by those monitoring control. This often results in misleading figures and significant financial misstatements.

5. Lack of adequate control function:

An obvious weakness is a lack of internal audit. Another important weakness is a lack of adequate technical knowledge in key roles, such as in the audit committee or in senior compliance positions. A rapid turnover of staff involved in accounting or control may suggest inadequate resourcing and will make control more difficult because of a lack of continuity.

6. Misleading accounts and information:

Often, misleading figures are symptomatic of other problems, but clearly, poor quality accounting information is a major problem if markets are trying to make a fair assessment of the company’s value. The ultimate risk is the organization making such large losses that bankruptcy becomes inevitable. The organization may also be closed down as a result of serious regulatory breaches, for example, by misapplying investors’ monies.