It’s
about a year now since the global economy entered a new phase of
recession that started from September 11 and reinforced by the fall of
Enron a couple of months later. The
fall of Enron pressed the alarm bell and put a question mark on the
very system of corporate governance and accountability especially of
the kind followed in the US. But the genie of US corporate were quick
to clarify that Enron was rather a case of aberration and things will
be alright very soon. However the continuing trend of corporate
failures during the later months have made it amply clear that far
from being an aberration Enron was just a tip of the iceberg.
The
global and the US economies may be on a comeback trail but the trend
of corporate scandals continues unabated. Last year, 255 publicly
traded companies put $260bn of assets under court protection, almost
triple the record for a decade in the US.
This year another new record may be made. No doubt, some of the
companies suffered due to a glut of capacity and amid waning demand.
But the corporate honchos cannot explain everything with that, as many
of them are actually involved in financial scandals
With
this scenario in the background the revelation made by a Financial
Times survey that the top bosses of the biggest US business collapses
amassed billions in salary and share sales while the stock market was
still booming, has vindicated the belief held by many that achieving
long term corporate success was not necessary for managers to reap
enormous personal rewards. The fact that the biggest winners were the
former executives of Enron, Global Crossings, and WorldCom, all scam
tainted companies, makes it necessary to evolve a new paradigm of
measuring the performance of the corporations and their managers.
The
unholy nexus between the tainted executives and the reputed accounting
firms, so far considered as the watchdog for corporate governance
practices, has brought uncertainties and bewilderness even among the
corporate circles. The panic stricken responses of hiring and firing
of accounting firms could not bring credibility into the system as the
companies who have fired their auditors only hire somebody who are
also not scandal-free. It’s
high time that an appropriate corporate governance framework is
evolved and this can be done only through wide consultation involving
all stakeholders.
Happy reading!
Pradeep
S Mehta, Editor
I.
Project
Progress
The
7-Up Project, as it is
popularly known, is running in its last quarter now. The activities
are on the verge of completion and would take a final shape in the
coming months. During the months of July and August 2002, a
considerable progress was made in respect of the phase-II activities
of the project
1.1
Final Touches to Phase-I
The
phase-I country reports of the project were printed and despatched to
the partners for being formally launched at the National Reference
Group meeting. These reports would be distributed locally by the
partners for wider dissemination.
1.2
Phase-II Review Meeting, 5th- 6th July
2002, Geneva
The
Phase-II Review meeting was organised on 5th- 6th
July 2002 at Geneva. The purpose of the meeting was to deliberate upon
the phase-I synthesis report and discuss the phase-II case studies.
The meeting was attended by the project partners, researchers, members
of the advisory committee and representatives of some of the
competition authorities.
1.3
Phase-II Research Activities
The
crucial activities of phase-II were completed to a large extent during
the period under review. The case study reports have been revised on
the basis of the comments and suggestions of the advisory committee
and the discussions of the phase-II review meeting.
1.3.1
These case study reports would take the form of phase-II country
reports and would then be discussed at the NRG meetings in these
countries. The country reports would be a synthesis and not just a
collection of the case studies. Researchers have started preparing the
drafts of these reports and these would be revised as per the
suggestions of the NRG.
1.3.2
The draft of the phase-II synthesis report has also been prepared and
would be finalised in consultation with the project advisory
committee.
1.3.3
An outline for the Final Advocacy Document has been framed and the
document would be drafted by the end of September 2002.
II.
Major News
& Views
1.
EU Hits Out at US Corporate Bill
European
governments are warning the US that the corporate reform bill would
extend US regulations to foreign companies, raising concerns of
“double jeopardy.”
Fritz
Bolkestein. EU internal markets commissioner, is sending a letter to
members of the congressional conference today, saying the bill,
expected to pass Congress shortly, would “pre-empt” the regulatory
role of the European Commission.
And
in a similar letter last week, the UK government said that the bill
“would extend the reach of US regulation beyond the territory of the
United States.” As a
result, “it would also undermine our sovereign right to impose a
system of regulation in the UK appropriate to our own
circumstances”. The
concerns have arisen over a section of the Senate version of the bill,
which would apply the new regulatory oversight to foreign as well as
US auditing firms.
Paul
Sarbanes, chief author of the Senate bill, is determined to have such
a provision in order to discourage US companies from relocating abroad
in order to escape more aggressive oversight of accounting practices.
The
Senate bill requires that foreign-based auditors of any foreign
company which has a US listing be subject to oversight by a new board
to prevent accounting frauds. That board would be empowered to require
the auditor to produce records for such foreign companies.
While
the US already has bilateral agreements with many European countries
allowing access to auditing records for certain investigations, EU
officials fear the bill goes much further, and could open corporate
officers of European firms to both civil and criminal penalties in the
US.
In
addition, EU officials are worried that the legislation could
interfere with efforts to agree on European-wide corporate governance
rules, by creating a de facto standard for all European companies that
trade in the US.
European
officials argue that there are no similar provisions in European law
that would impose additional regulations on US auditors of US firms
that have stock listings in the EU. House Republicans are opposed to
the extra-territorial provisions of the bill, but they are in a weaker
position in talks with the Senate. (By
Edward Alden in Washington, FT, 23.07.02)
2.
UN Seeks Role for Developing Nations in Curbing Food Groups
The
operations of large food multinationals should be more actively
regulated by developing nations heavily reliant on agriculture, the
United Nations Food and Agriculture Organisation (FAO) said yesterday.
An
FAO study, to be released today, warns that globalisation “has led
to the rise of multinational food companies with the potential to
disempower farmers in many countries”.
Developing countries needed “the legal and administrative
framework to ward off the threats while reaping the benefits”.
But it concludes that the overall benefits of globalisation are
likely to outweigh its risks and costs.
The
call for greater regulation, contained in a study on world agriculture
and food trends in the next 30 years, coincides with the debate on
regulating big multinationals expected to feature at the World Summit
on Sustainable Development opening in Johannesburg at the weekend.
The
report says the negative impact of globalisation can be mitigated by
measures including openness, investments in infrastructure, promotion
of economic integration and limits on market concentration and
control, to make globalisation work for the benefit of the poor.
Multinationals,
which have launched a campaign ahead of the summit to show that their
goals are compatible with sustainable development, are lobbying the UN
to endorse their plans for voluntary self-regulation. But Jacques
Diouf, FAO director-general, told the FT self-regulation was often
based on the “immediate interests” of big business.
The
FAO also felt genetically modified organisms should be subject to
international rules. GMOs
could be a “good scientific tool” to improve conditions,
especially in the poorest countries, but had to be controlled. Another
issue likely to dominate the summit was the need for developed
countries to make a greater financial effort to assist poorer
countries. Although the
latest FAO report predicted that there would be enough food for a
growing world population by 2030. “hundreds of millions of people in
developing countries will remain hungry”. (Paul Betts in Rome,
FT, 20.08.02)
3.
Consumer Watchdog Urges More Business Regulation
Deregulation
has created a U.S. marketplace that is often bad for consumers, finds
a study by Consumers Union, publisher of Consumer Reports magazine.
The study, to be published in July’s issue, looks at how
deregulation affects prices, consumer satisfaction, safety choice and
innovation in the air travel, telecommunications, cable-television,
banking and electricity markets.
Most
deregulation talk focuses on benefits for business, but for consumers,
“deregulation isn’t all it’s cracked up to be.” said James
Guest, President of Consumers Union; a nonprofit watchdog.
He doesn’t recommend abandoning deregulation, but advocates a
“midcourse correction” of the trend that began in the 1970s, like
more regulation of cable and local telephone monopolies. (Dow.
Jones)
IV
Forthcoming Events
1.
Competition Challenges in a Globalising Economy: Issues before India,
4th October 2002, New Delhi, India
CUTS-Centre
for International Trade, Economics & Environment is organising the
subject mentioned meeting in collaboration with National Council of
Applied Economic Research at New Delhi on 4th October 2002.
The purpose of this half-day seminar would be to discuss upcoming
issues related to domestic and international competition concerns from
the perspective of developing countries, particularly India. It will
also launch the Phase-I country report of India prepared under the
7-Up Project. It analyses the competition policy in the broader
context of the changing economic policy regime in India. It also deals
with the institutional framework for enforcing competition law in the
country. The Seminar would involve the participation of different
stakeholders – consumer organisations, competition and regulatory
authorities, academia and media.
2. Africa Regional Seminar on Investment, 18-19 October 2002,
Nairobi, Kenya
On
18-19th October 2002 an African Regional Seminar on
“Investment for Development”, is being organised by CUTS’ Centre
for International Trade, Economics & Environment and Eco News
Africa in collaboration with UNCTAD. At this one and a half day
seminar, participants will discuss economic and political issues
relating to Foreign Direct Investment, in order to understand
national, regional and international rule maki8ng in this area in a
better manner. Project researchers from South Africa, Tanzania and
Zambia will present their findings at the seminar.
3.
ICN Conference in Naples, 27-29 September 2002
The
inaugural conference of the International Competition Network would be
held on September 27-29, 2002, at Naples, Italy. The conference would
address issues and challenges of common interest to competition
agencies. It will bring together heads and senior representatives of
competition agencies from around the world to review the progress and
recommendations of current projects under way and decide on the new
work programme for 2002/2003
