Lamenting Reform? The Changing Nature of Common Law Corporate Governance Regulation
Company and Securities Law Journal, Vol 25, pp.283-299, 2007
21 Pages Posted: 20 May 2011
Date Written: Jan 12, 2007
The levels of legal protection for shareholders necessary to produce and support a flourishing securities market has become one of the central controversies in corporate governance scholarship in the past decade. In 1997 and 1998 La Porta et al produced two articles containing evidence that shareholder protection measures in company law were connected to a developed stock exchange. Australia, the US and the UK all share that common law heritage and indeed all have developed stock exchanges. However, over the past decade the failure of the traditional arms-length regulatory systems in the US and Australia has led to a change in regulatory emphasis towards a more interventionist approach. In the US the collapse of Enron and WorldCom led to the Sarbanes-Oxley Act of 2002, which formally regulates boardroom accountability and provides for an enhanced policing role in corporate governance matters for the Securities and Exchange Commission. In Australia the successive corporate scandals of the late 1980’s and early 21st Century has led to the takeover of corporate regulation by the Federal authorities and the formation of the Australian Securities and Investments Commission to police it. In the UK however no such wave of corporate scandals caused a regulatory backlash. Indeed, in the press reporting comparing the UK and the US, the UK is often viewed as having a light touch regulatory regime. For example in March 2007 a US Securities and Exchange Commissioner described the UK market as a ‘casino’ in terms of its regulatory structure. However, as will be observed over the course of this article and contrary to this general perception, the UK has undergone a similar transformation in its regulatory ethos as the US and Australia but for very different reasons. As such the purpose of this article is to examine that change in emphasis through the prism of recent corporate governance reform in the UK and ultimately what it may mean for common law systems given the La Porta et al claim about what has traditionally worked for those securities markets.
Keywords: light touch regulatory regime, Securities and Investments Commission, boardroom accountability, corporate governance, La Porta, law matters, Australia, UK, US, common law heritage, stock exchange, arms-length regulatory systems, Enron, WorldCom, Sarbanes-Oxley, Securities and Exchange Commission
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