News from Brussels that the European Commission (EC) is to adopt new methodologies for corporate governance from the US is, in the wake of the Enron and WorldCom scandals, a bit like accepting advice on contraception from the old woman who lived in a shoe.
On the same principle, we should expect the EC to invite the French to regulate political lobbying, the Italians to oversee offshore investment and the Greeks to stamp out unauthorised commercial incentives.
Perhaps we British should provide the EC with a framework for managing the motor industry. Or perhaps, even more inappropriately, offer our expertise in running a decent, state-funded education system.
I’m sure the French and Germans could learn as much from us about labour relations and state schools as anyone in Europe can learn from the Americans about corporate governance. It’s makes about as much sense, frankly, as taking lessons from the US in geopolitical diplomacy.
I concede that a case could be made that those who are most chastened by systemic abuse are best advised to counsel those who are less adversely experienced. This is the principle on which much alcoholic counselling is based – no one can understand the mind of the alcoholic like a recovering alcoholic.
But no one suggests that the alcoholic is put in charge of the pub. Similarly, in the world of corporate governance, it may take a thief to catch a thief – but you don’t ask him to fit your burglar alarms too.
So it is with the US regulatory authorities. We’re not just asking the specialist advice of the ex-con or reformed alcoholic here, we’re actually asking them to regulate the very systems they have so conspicuously and spectacularly abused in recent years.
It is not as if the US, wringing the cap in its hand, is saying in all humility that it has learned some terrible lessons in corporate governance in recent years and that it could proffer its experience in other markets, so that they might not suffer the same fate.
No: what the Americans have been telling Europe is that we must do it under their jurisdiction. After the Enron and WorldCom scams, scandals and frauds – over which, incidentally, the Americans don’t seem to feel any great sense of international shame, or even embarrassment – the US introduced the quaintly European-sounding Sarbanes-Oxley Act.
This is a system under which companies’ US auditors are required to register with the Public Company Accounting Oversight Board (PCAOB – an acronym to conjure with: “political correctness” meets “any other business”).
The EC is prohibited from legislating in the area of criminal law. But that didn’t daunt the Americans. “Never mind,” they thought, “we’ll establish US-style oversight boards in each European Union member state.” In addition, the Americans airily added that they would operate a Europe-wide audit regulatory committee.
Much to its credit, the EC said the US would do no such thing. This week’s announcements from the commission mark the beginning of a compromise. But what’s really worrying is that European markets are having to compromise with an American attitude that was so sweeping in its arrogant commercial imperialism in the first place.
At the root of the US trade problem is the American split personality over free markets. At one level, the country’s free markets have produced the strongest economy on earth, from which we all prosper.
At another level, however, US free markets have brought us not just Enron and WorldCom, but Wall Street banks that advise investors to buy stocks they eschew themselves. And demands for open-skies policies for US airlines in all markets except their own. And the imposition of US regulatory regimes on foreign markets.
Such is the “freedom” of US markets. And such is the EC time and effort tied up with the constant negotiation of an accord with US regulators, not about adopting our own systems of regulation in free markets, but about adopting some version of the American system.
So the EC is less concerned with developing a competition ruling on Microsoft’s alleged abuse of its Windows monopoly this week to suit European markets, than it is in reaching one that suits the US.
Similarly, I understand that Shell (Anglo-Dutch) is considering appointing a former chairman of the Securities and Exchange Commission (American) – an organisation notorious for lamentable self-regulatory standards in the past – in order to “impress” US regulators.
How long before all European corporate governance defers to the US? Don’t misunderstand me – I wouldn’t mind that happening, if the US was any good at it.
I’m not even much bothered by the prospect of American lunatics taking over US asylums – arguably, the neo- conservatives have achieved that anyway. What I am bothered by is American lunatics taking over our asylums too.
George Pitcher is a partner at communications management consultancy Luther Pendragon