The Changing Role and Responsibilities of Audit Committees in the United States Page: 17
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most of the shareholders had no idea who should be recommended for board
membership. Most shareholders dutifully marked their proxy ballot as the manager
recommended, and the manger's power was thereby extended and strengthened.
The giant corporate entities that developed from the burgeoning of ownership
and concentration of power in managers created enormous pressure for corporate
governance mechanisms to curb managers' exercise of power. Out of this significant
need grew the audit committee concept. Regulatory bodies, aware of "cronyism" on
boards, determined that a committee, composed of directors who were not connected to
management, would best suit the task of hiring external auditors, assist in setting a
proper scope for the audit, and, in general, overseeing the external audit process.
Diffusion of corporate ownership was not only widespread but also of different
types of owners. Many were individual owners, but a growing number of corporate
shareholders were institutional. Indeed, many individual shareholders, understanding
that they lacked sufficient expertise to decipher corporate financial data, turned to
institutional groups to invest in corporate shares in their stead. This diffusion is
examined in each chapter as to the effect it had on corporate governance and
managerial power, because any symbolism in regulatory restraint affected each type of
ownership differently and because each type of ownership had its particular effect on
managerial power.
Symbolism
One of the major points discussed in this study is whether corporate governance
reforms, such as recommending establishment of audit committees as a part of
corporate boards, was a real reform, designed to enforce the concept, or a symbolic17
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Teed, Dan Graham. The Changing Role and Responsibilities of Audit Committees in the United States, dissertation, August 2010; Denton, Texas. (https://digital.library.unt.edu/ark:/67531/metadc30519/m1/25/: accessed April 24, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; .