In this guide
When companies like Enron and Steinhoff collapse, the headlines focus on the fraud — the inflated numbers, the off-balance-sheet deals, the executives walking off with bonuses while shareholders lose everything. But behind every one of those stories is the same underlying problem: a failure of corporate governance.
This guide explains what corporate governance actually is, why it matters, and how it’s tested in the ACCA BT exam. We’ve also embedded our complete 4-part video mini-series with ACCA tutor Anthony Wolpert — so you can read or watch your way through the topic.
At its simplest, corporate governance is the system by which organisations are directed and controlled by their senior officers. It exists to make sure that the people running a company — the directors and executives — act in the best interests of the company as a whole, not just themselves.
The problem governance solves is called the agency problem. When shareholders own a company but hire managers to run it, those managers (the ‘agents’) sometimes act in their own interest rather than the shareholders’ (the ‘principals’). They might inflate profits to trigger bonuses, hide debts off the balance sheet, or take risks that benefit them in the short term but damage the company long term.
Three theories sit underneath modern governance thinking: agency theory (manage the conflict), stewardship theory (directors as fiduciaries with a duty of care), and stakeholder theory (the company exists to serve all parties, not just shareholders). Anthony walks through all three in Part 1 below.
Both Enron (collapsed in 2001) and Steinhoff (the 2017 accounting scandal that wiped out billions in shareholder value) became case studies in what happens when governance fails. In both cases, management hid the true financial state of the company — Enron through off-balance-sheet liabilities, Steinhoff through inflated revenues and questionable transactions across jurisdictions.
In each case, the auditors didn’t catch it (or didn’t want to), the boards didn’t ask hard enough questions, and shareholders paid the price. These failures are exactly why corporate governance frameworks now demand independent boards, audit committees free from executive influence, and directors who personally certify that financial statements are accurate.
Different countries take different approaches to governance. The US is codified — the Sarbanes-Oxley Act (SOX) sets out specific rules. Directors must certify financial statements personally. Audit committees must be independent. Break the rules and you’re breaking the law.
The UK takes a principles-based approach. The UK Corporate Governance Code — built from the Cadbury, Higgs, and Smith reports — operates on a ‘comply or explain’ basis. You don’t have to follow every recommendation, but if you don’t, you must justify it to shareholders.
Both systems require an independent board with a non-executive chairperson, a mix of executive and non-executive directors, and properly constituted committees:
Anthony explains how this all fits together in Part 2.
💡 Studying ACCA BT? Our full ACCA BT package covers all of this in depth — practice questions, mocks, video lectures, and tutor support across the entire syllabus.
Governance is only half the story. Corporate social responsibility (CSR) is the idea that organisations have obligations beyond just maximising shareholder wealth — to employees, customers, communities, and the environment.
Companies tend to take one of four approaches:
There’s a real debate here. Some argue shareholders should decide what to do with their own profits — that companies already contribute through tax, and additional ‘social responsibility’ is voluntary. Others argue that a pure profit motive leaves environmental damage and social harm unchecked until it’s too late to fix. Part 3 of the series covers both sides.
The most widely taught CSR framework — and the one ACCA BT tests directly — is Carroll and Buchholz’s four responsibilities:
Alongside this, Johnson and Scholes describe four ethical stances: short-term shareholder interest, longer-term shareholder interest, multiple stakeholder obligations, and shaper of society. The further along that scale a company moves, the more it sees itself as influencing not just its own future but the wider environment it operates in.
Anthony brings the full picture together in Part 4 — and ties it back to governance.
Corporate governance and CSR sit in Chapter 8 of the ACCA BT syllabus. Expect questions on agency theory, the role of non-executive directors, the differences between SOX and the UK Code, audit committee responsibilities, and Carroll’s four CSR responsibilities. Most appear as 2-mark objective questions in Section A, with the occasional 4-mark MTQ in Section B.
Two countries. Same goal. Different rules.
Corporate Governance Approaches
🇺🇸 United States
SOX Act
Rules-based · Codified
Specific legal rules. Directors must personally certify financials. Audit committees must be independent. Breaking it means breaking the law.
🇬🇧 United Kingdom
UK Code
Principles-based · Comply or explain
Built from Cadbury, Higgs and Smith reports. Companies don't have to follow every rule — but they must explain themselves to shareholders if they don't.
The good news: this content is conceptual, not calculation-heavy. If you understand why corporate governance exists (the agency problem) and how it’s implemented (boards, committees, codes), you can usually reason your way to the right answer even on a question you haven’t seen before.
For more BT-specific resources, free notes, and the full mini-series, head to our ACCA BT page.
What is corporate governance in simple terms?
Corporate governance is the system that controls how a company is run. It's the rules, structures and processes that make sure directors and executives act in the company's best interest — not just their own — and report honestly to shareholders and other stakeholders.
What is the difference between SOX and the UK Corporate Governance Code?
SOX (the US Sarbanes-Oxley Act) is codified law — it sets out specific rules that listed companies must follow. The UK Code is principles-based and works on a "comply or explain" basis — companies don't have to follow every recommendation, but they must explain to shareholders if they don't. Both aim to prevent the kind of failures seen at Enron and Steinhoff.
What is agency theory in corporate governance?
Agency theory describes the conflict that arises when one party (the agent — usually company management) is hired to act on behalf of another (the principal — usually the shareholders). The agent's incentives may not align perfectly with the principal's, which is why governance frameworks try to limit that conflict through independent boards, audit committees and external scrutiny.
What are Carroll's four CSR responsibilities?
Carroll and Buchholz identified four levels of corporate responsibility: economic (make a profit), legal (obey the law), ethical (do the right thing beyond what's required), and philanthropic (give back to society). Together they're often shown as a pyramid, with economic responsibility as the foundation.
Is corporate governance tested in ACCA BT?
Yes — corporate governance and CSR sit in Chapter 8 of the ACCA BT syllabus. Expect 2-mark objective questions in Section A on agency theory, board structure, governance codes and Carroll's CSR model, with the occasional 4-mark MTQ in Section B.
How can I learn ACCA BT corporate governance for free?
Our free 4-part mini-series with ACCA tutor Anthony Wolpert covers the entire chapter — agency theory, boards and committees, CSR strategies, and the Carroll model. All four videos are embedded in this article. For practice questions and mocks, our ACCA BT package on Practice Tests Academy has 725+ questions covering the full syllabus.
Join thousands of ACCA students who chose PTA for smarter practice, 725+ questions, and full BT syllabus coverage — at a fraction of the cost of Kaplan or BPP.
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