to download a Special Report of this meeting - The Europaeum

Round Table Discussions
SESSION IV
Round Table Discussions
GROUP A: Do some regulatory codes perform better than others
In general, principle-based code will work better than mandatory rules; one of the reasons is that
in the latter case there is a danger that Board may comply with them without any reflection on their
performance. Principle-based codes allow for some diversification, resulting in a healthy competition
between companies and systems. This already illustrates that a well-developed market may be a prerequisite
for principle-based code to work. In earlier stages of development, formal rules might be
more important. The value of rules may also depend on particular cultures, traditions, the various
positions of employees, trade unions, shareholders etc. In some societies, people are more likely to
respond to written rules than in others.
Combined codes, in varying proportions, may be the best answer, but they should never be overprescriptive.
It may be safely assumed that company boards generally will treat codes as written
rules if they are forced to explain why they do not comply with those codes. Formal rules have the
drawback that they may be difficult to change, e.g. because of lack of time in Government and
Parliament.
What are the right overall policies for Europe
The answer to this question is partly in the above. Policy, however, should allow for a considerable
diversity of regimes, consistent with the principle of equivalence, to stimulate competition. The
regulatory impact should be assessed, and appropriate cost-benefit analyses should be made.
Should Sarbanes-Oxley apply to European businesses
Yes, in principle, but …” USA culture is very regulatory and lawyer-driven, and Americans tend
to believe that rules and complying with rules is crucial. Therefore, US models are not directly applicable
to other continents and countries. Furthermore, the USA has a strongly developed market system,
where the rules of the New York Stock Exchange are at least as important as government regulations.
The situation elsewhere is usually not exactly the same, and indeed often very different.
Sarbanes-Oxley deals with some problems, although it is not a complete governance model, but is
over-prescriptive and does not allow for a larger variety of circumstances than exist in the US.
A strong point of Sarbanes-Oxley is that management never has the excuse that it didn’t know
what was going on. It should be clear who is ultimately responsible. In Europe, it is often easier to
manipulate information, even within the rules, to present reality in a more positive way. A weak
point of Sarbanes-Oxley may be that it is over-prescriptive, and does not easily accommodate various
circumstances. Sarbanes-Oxley strengthens internal information and control, which should be
considered a positive effect.
GROUP B: Should institutions be more active in governing firms
Yes, to avoid regulation. However, an argument can be made that taking ownership rights is sufficient.
Are still-tougher rules required
Generally speaking, regulations are sufficient. However, they need to be better-enforced and
stronger disclosure rules would be desirable.
What are the costs of regulation
If regulation were sensible, the costs would probably have been incurred without the regulation.
So, are the costs too high The emergence of the private equity market suggests yes. The companies
from emerging markets that want to be listed in London, Frankfurt or New York suggest no.
44