Treasury Today Country Profiles in association with Citi
Treasury Today February 2003 magazine Buy print copy button

February 2003

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Editorial

The problem with corporate governance

Companies across Europe have been under growing amounts of pressure over the last couple of years. Not only have they had to operate in worsening economic conditions, but most of them have also seen their share price continue to drop.

In some senses, this is not a new problem. The economic cycle will turn up sooner or later. Even the various stock exchange indices will start to rise at some point in the future. However bad the economic times seem now, there are better times to come.

But companies face new pressures. As a result of a small number of very high profile, US corporate failures, governments around the world are focussing on corporate governance. Unfortunately the high profile (and, arguably, connections with the White House) forced the US government to put the Sarbanes-Oxley Act on the statute book last summer. There are a number of problems with Sarbanes-Oxley, not least the way that the US legislators are trying to export their laws into Europe and the rest of the world.

However there is a bigger problem. All those who were complicit in these high profile failures must have known that they were acting, if not illegally, at least immorally. But the attraction of high profits and personal gain outweighed the obligation to act in an honourable manner. The complicit thought they would ‘get away with it’.

Legislation, particularly that designed to show that ‘something has been done’, will not solve the problem of greed. Good corporate governance cannot be legislated into existence. The directors of companies have to insist on implementing best practice within their own organisations. Legislation may provide the guidelines – but companies and individuals themselves have to implement good quality corporate governance.

The treasury and finance function has an important part to play in ensuring this happens.