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Anglo-American and European Models
nance and I would like to point out a recent
Korn/Ferry survey where the top 100 companies
in the US say that it costs more than $5 million
to comply with 404 (the internal controls section
of Sarbanes-Oxley). These are significant financial
costs and the company community is saying
that these costs should be considered if there is
to be further regulation.
The question as to whether or not all this corporate
governance is working: again, I have my
doubts. When you look at what happened with
Hollinger in Canada, where $1.7 billion and 97%
of revenues can’t be explained, and you wonder
what is going on. Today, I was looking at the
Financial Times: there is a Japanese director
who has just been indicted, one of the bestknown
industrialists of the last 15 years, for malreporting
and misreporting his company
accounts – not for the last year or two, but for
the last 40. I am wondering: where is the
enforcement taking place to actually implement
the practices we think are desirable.
To finish, an overview from the OECD last
year suggested that corporate governance practices
were improving. There is still a long way to
go, however. The OECD suggest improved transparency
and disclosure (because sunlight is an
extremely important factor in improving corporate
governance) and also suggest that compliance
must be monitored far more. There seems
to be very little going on around the world in
terms of actually evaluating compliance, particularly
in the areas where we have comply-orexplain.
I take on board Antonio’s comment
that, in Europe particularly, we have barriers to
capital transfers which must be seriously looked
at if European governance is to expand into a
credible alternative to corporate governance
practices in the US.
Just for a bit of fun, I did not
refer to the World Bank and
their people because, as you
may know, some of them have
Antonio
Borges
been recently fired for fraud! As regards the
national versus international governance models,
it is true that they are still very national, but
business leaders and other authorities realise
that things are changing. This is an important
point because, to a large extent because of the
euro, there is more cross-border investment in
Europe than before. There are stock markets
that are losing market share while others are
gaining due to the higher standards of governance
in certain areas. Competition is beginning
to emerge, which is precisely what is generating
the protectionist response.
Governments and certain business leaders are
now demanding protection and new barriers
which did not exist before: they are more concerned
with competition within Europe. So there
is a trend in the right (i.e. pan-national) direction,
but it is, unsurprisingly, being resisted.
On the interesting and important issue of governance
and performance, I do not have any
research that I can quote off the top of my head,
but there are two important points: First, in the
European model of large block-holders with a
very strong influence on the company, it is generally
easy to prove that this leads to better decision-making.
Many managers at difficult
moments in their careers and the lives of their
companies will perform better if they can go to
someone who is on their side, and is supportive
and helpful. It is of course subjective, but I
believe it introduces an element of stability –
emotional stability, if you like – which delivers
better performance. Second, in my view, in the
US you have the very opposite of this. You have
boards which demand constant performance.
Never mind what the stock market is doing – “we
supported you a couple of years ago and now
we’ll fire you.” No hesitation, no counter-pressure.
On the other hand, if someone comes in
with a bold approach or gamble – “let’s go, we
are with you. We are certain our shareholders
know how to deal with that.”
This is, in my view, very much behind the
drive for performance and the appetite for risktaking
which characterise the US economy today.
These are just two instances of links between the
governance model and the performance of the
companies under those models.
You mentioned the OECD Guy Jubb
and the World Bank. From
a practical standpoint,
those actually do not come into our analysis to
any significant degree. We are aware of them in
the background – perhaps we should pay more
attention to what they are doing – but as things
stand at the moment the OECD and the World
Bank, whilst very important bodies that have
done a lot for the furthering of corporate governance,
are not given much attention. We are
dealing much more with local and specific issues.
Antonio’s argument that the
reason the US governance
model is currently the
leader – its effectiveness – is due
Unknown
questioner
to market scrutiny and the market’s capacity for
immediate censure. I would argue that in the UK
we actually have much closer and more effective
scrutiny via our regulators, but at any rate in the
UK I think the existing model is still not proven
and depends on the effectiveness of institutional
investors.
My worry is: how long will the regulators or
legislators wait for investors to gear up to play in
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