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ENFORCEMENT OF CORPORATE GOVERNANCE CODES

ENFORCEMENT OF CORPORATE GOVERNANCE CODES. LEO GOLDSCHMIDT Director, ECGI (EUROPEAN CORPORATE GOVERNANCE INSTITUTE) OECD ROUNDTABLE MOSCOW, 2 JUNE 2005. LEGAL BASIS FOR CG CODES. Law SOX, some listing rules Contracts listing rules, AGM Recommendations majority.

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ENFORCEMENT OF CORPORATE GOVERNANCE CODES

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  1. ENFORCEMENT OF CORPORATE GOVERNANCE CODES LEO GOLDSCHMIDT Director, ECGI (EUROPEAN CORPORATE GOVERNANCE INSTITUTE) OECD ROUNDTABLE MOSCOW, 2 JUNE 2005

  2. LEGAL BASIS FOR CG CODES • Law SOX, some listing rules • Contracts listing rules, AGM • Recommendations majority

  3. CODES’ AUTHORS • [Legislator] • [Regulator] • Stock Exchange • Professional organisations • Institutional investors • Ad hoc • Self

  4. ENFORCEMENT • Monitoring • Investigating • Sanctioning • Admonishing • Ordering (recommending) change • Publicising : name and shame • Fines • Cancelling privileges • Delisting

  5. ENFORCEMENT : WHAT • Form box ticking • Comply or explain : scope • Substance nature, extent • Vagueness : difficulty to circumscribe

  6. ENFORCEMENT : WHO BY • Courts • Regulator FSA, CBFA • Stock Exchange LSE, Euronext • Special committee Public> < Private • Professional body • Auditors • Self (board) • Shareholders • Public, media

  7. ATTITUDES (1) • Stock exchanges • Reluctant to police • Commercial considerations > < Public good • Surveillance function, but • Shift to shareholders (or auditors) for monitoring • Shift to regulator for investigation and sanction • Inflict minor sanctions (rather than delisting)

  8. ATTITUDES (2) • Regulator • If no legal base, reluctance to be proactive • Prudence in investigating and sanctioning • Shift to courts for contracts

  9. CONSEQUENCES • Authorities show reluctance • Enforcement tends to be weak • Fosters non compliance • Induces legislator to intervene – reactive, hasty, excessive, late, insensitive, rigid • Small minority causes majority to suffer costs and constraints hampering enterprise

  10. CONCLUSION • Equilibrium is delicate • Questions (generally & for emerging markets) • Do comply and explain “pros” outweigh “cons”? Yes • Is legislative threat a sufficient deterrent ? No • Should rules be given more teeth (AGM, listing requirements = firm grounds for complaints) ? • Should auditors be given a greater monitoring role ? • Should there not be more research (e.g. a comparative study) on enforcement regimes ?

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