Mandating Corporate Behavior:
Can One Set of Rules Fit All?
by George S. Dallas and Hal S. Scott
New Report Sees Expanding Role for Investors in Monitoring Corporate Behavior
Uniform global rules for corporate governance do not suit all companies or circumstances, say Standard & Poor's and Harvard Law School authors.
Press Release
(from The McGraw-Hill Companies)
New York, NY :: May 17, 2006 —
Investors and other market participants must play a more active role in scrutinizing corporate boards and senior management for voluntary corporate governance systems to be effective, says a whitepaper published today by Standard & Poor's, a leading provider of financial information and analysis, and the Program on International Financial Systems (PIFS) at Harvard Law School. The report, entitled Mandating Corporate Behavior: Can One Set of Rules Fit All?, draws from a discussion held with an international panel of government regulators, corporation heads and shareholder rights representatives hosted by Standard & Poor's, BusinessWeek, and PIFS in December 2005, and was written by George S. Dallas, Managing Director, Standard & Poor's, and Hal S. Scott, Nomura Professor of International Financial Systems at Harvard Law School. A PDF copy of the report can be downloaded here. In addition, the report as well as author video commentary may be viewed at the S&P website.
In their whitepaper, Messrs. Dallas and Scott address several interrelated themes influencing the corporate governance debate in today's financial marketplace. These themes include board independence and effectiveness; the role and the independence of the auditor; shareholder rights and activism; and convergence to a global corporate governance system. The authors' multi-jurisdictional approach sheds light on fundamental differences in existing governance practices globally given differing approaches to board structure, audit practices and ownership structure.
"No one system of corporate governance is the benchmark for all companies in all jurisdictions and no system of governance is without its own vulnerabilities," says George Dallas. "While the American system may exert a strong global influence on companies seeking access to international public capital markets, it is by no means a universal influence — nor one that is impervious to alternative approaches."
"In spite of the much larger size of the US capital markets, the United Kingdom is an example of a viable alternative source of capital for international issuers of debt and equity and offers a viable alternative approach to corporate governance," observes Professor Scott. "While the UK shares with the US a tradition of strong transparency and disclosure, the UK investor environment also offers a more robust base of shareholder rights than the US. And, through its 'comply or explain' approach to regulation, it also offers an alternative to the US regulatory environment — including the advantages of being less prescriptive and legalistic."
Mandating Corporate Behavior: Can One Set of Rules Fit All? contains both the Dallas and Scott report as well as the full transcript of the December 2005 panel discussion among leading governance specialists in the US, Europe and Asia which their research draws upon. The authors point out that different regulatory approaches to governance in Europe and the U.S. reflect, in part, different histories, cultures and opinions about the role of business and society. They conclude that investors need to play an important role in making the "comply or explain" system a credible alternative to a more prescriptive approach to governance regulation found in the U.S. Currently they see indications that investors are not as active in overseeing corporate governance of the companies they invest in as they could be.
About Standard & Poor's
Standard & Poor's, a division of The McGraw-Hill Companies (NYSE:MHP), is the world's foremost provider of independent credit ratings, indices, risk evaluation, investment research and data. With more than 6,300 employees located in 21 countries, Standard & Poor's is an essential part of the world's financial infrastructure and has played a leading role for more than 140 years in providing investors with the independent benchmarks they need to feel more confident about their investment and financial decisions. For more information, visit www.standardandpoors.com.
Program on International Financial Systems at Harvard Law School
Founded in 1986, the Program on International Financial Systems (PIFS) at Harvard Law School conducts international research on the effects of government policy on financial markets and the role of law in economic development. In addition, it hosts international forums for the exchange of ideas and provides public policy advice to governments.
For hard copies of the publication or to schedule interviews with the authors, contact:
Michael Privitera, Communications
Tel.: (212) 438-6679
michael_privitera@standardandpoors.com
