Corporate governance conference focuses on financial sector regulation

World leaders need to set out priorities for corporate governance reform in order to bolster faltering efforts to restore market stability and economic growth, according to the institutional investors gathering in Paris for an annual corporate governance conference.

Carl Rosen (pictured), the executive director of the International Corporate Governance Network (ICGN), says the attendees were particularly concerned about banking and financial institution regulations and their potential effect on corporate governance.

Rosen says that regulators around the world have expanded their oversight function into areas such as remuneration and the approval of board members, which could have unintended negative effects on corporate governance.

“They (regulators) now perform some of the duties that used to be done by shareholders, and I am now thinking about remuneration and the approval of board members,” Rosen says.

“This disincentivises shareholders to be responsible investors, because it can be seen that someone else will take care of it.”

While acknowledging that shareholders of some banks and financial institutions had a poor track record in terms of responsible ownership in the lead-up to the financial crisis, Rosen says that the latest regulations send the “wrong signal”.

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“On the investor side it is important for investors to show that they take this seriously and that we will create some critical mass when it comes to the governance of banks and so forth, and we are not there yet,” he says.

One of the keynote speakers at the conference in Paris – which started on Monday and finishes today – was British Business Secretary Vince Cable, who outlined the Cameron Government’s proposals for financial reform and the controversial ring-fencing plans to separate the retail arms of banks.

Cable has been a vocal advocate of beefing up the regulations for banks, at times putting him at odds with his Tory coalition partners in the Cameron Government.

Rosen says that more than 500 attendees representing more than $18 trillion of combined assets under management attended the conference to hear more than 71 speakers.

Among the more prominent speakers was Emmanuel Moulin, an economic adviser to French President Nicolas Sarkozy, who discussed some of the problems plaguing the Eurozone.

Also outlining the potential direction of corporate governance regulation in Europe was Olivier Guersent, the head of the cabinet of European Commissioner Michael Barnier.

Rosen says ICGN advocates governance codes of conduct rather than prescriptive, detailed regulation.

“We support corporate governance codes instead of detailed regulation because we think that ownership in itself is the best way to govern companies,” Rosen says.

“We don’t think it is possible to have detailed regulation around regular corporate governance issues like board composition, and other issues,” he says.

Looking at the US corporate governance landscape was Robert Monks, the principal of LENS Governance Advisors.

He had a stark warning for attendees, saying that it was up to investors to save capitalism because everything else had failed.

At the conference the delegates also attend a range of breakout sessions looking at a range of topics.

“We encourage interaction with delegates and we will talk about corruption, board evaluation and one area that is really interesting is social media and corporate governance and, for the first time, we will have a twitter function at the conference,” he says.

The conference also looked at corporate governance in other asset classes such as fixed income.

“Governance in these other asset classes is really in its infancy; you are starting to see some interesting initiatives out there but it has taken a long time,” Rosen says.

At the conference the French lawyer and economist Colette Neuville received an ICGN lifetime achievement award for her work defending minority shareholder rights in France for the past 20 years.

Also receiving recognition was Harvard Law School professor, Lucian Bebchuk, who has done extensive work on the disparity between executive pay and economic performance.

“Much of my academic work over the years has sought to shed light on issues that are important to practice and policy making in the corporate governance field,” Bebchuk says.

“I am, therefore, delighted and honoured to have my research recognised by the ICGN.”

A third ICGN award was made to Dr Stephen David, the executive director of the Yale School of Management Millstein Center for Corporate Governance and Performance.

A co-founder of ICGN, David has worked extensively in corporate governance, including writing a groundbreaking study comparing corporate governance practices in different markets.

 

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