The World Economic Forum

Donaldson justified the legislation by the need for high standards in securities markets throughout the world: “The overwhelming majority of investors – regardless of their nationality and regardless of where they're investing – demand honesty and integrity. They demand that boards of directors take their fiduciary duties seriously. They demand that companies have the internal controls they need in order to ensure the accuracy of their financial disclosures. And when there is fraud or where securities laws or regulations are violated, investors rightly expect regulatory authorities to aggressively pursue enforcement action.”

He said that he wanted U.S. regulated companies to be recognised as 'the best of the best' in terms of compliance. He acknowledged the difficulties non-U.S. companies and U.S.- based multinationals are under, saying, “We recognize that cross-border listings frequently entail issuers having to navigate duplicative or even contradictory regulations in different jurisdictions … Though the Sarbanes-Oxley Act does not provide an exemption for foreign private issuers, we will continue to be sensitive to the need to accommodate unique foreign structures and requirements.”

Critics Speak Out

Among the SEC's critics was Sir Digby Jones, Director-General of the Confederation of British Industry, who spoke of a delegation to the U.S. in December of European companies, including Cadbury Schweppes, BASF and Siemens. He said, “It is not what you say that matters, but what you do. Globalization does not mean Americanization, and although the U.S. is trying to behave like a free market, it has a long way to go yet.”

While in Europe, the debate has continued to rumble on since dominating the business pages in January, little constructive progress has been made. Europe continues on its own legislative path, imposing even more burdens on companies with multiple listings. The growth of the EU makes things ever more complex – for example while clearly not all affect every company, in 2004 alone the EU passed 2280 Regulations and 117 Directives. Much of this regulation will be furthered by domestic legislation in the 25 countries of the

EU, and often similar legislation in those European countries not in the EU, like Switzerland, Norway and Bulgaria. To add to the complexities, this legislation appears in 23 different languages.

In Europe, businesses have characterized the change from compliance being “nice to have” through “essential” to being an industry and a profession in its own right. What seems certain is that the tide will not turn back on either side of the Atlantic.

The hills were alive with the sound of Sarbanes-Oxley in January when the Swiss mountain resort of Davos hosted the World Economic Forum. Representatives of some of Europe's largest companies discussed the impact of the U.S. legislation on their operations, asking whether the impact of the additional regulation was worth the prestige of a New York listing or the opportunity to raise money on the world's largest capital market. It was reported that up to 60 European companies were ready to drop their U.S. listings.

View from the SEC

The debate followed a visit to London a couple of days earlier by William Donaldson, Chairman of the SEC. Donaldson started his speech by looking at the long list of U.S. corporate governance scandals – including Enron, WorldCom, Adelphia, Health South, Tyco and Global Crossing. He then emphasized the fact that similar issues had been faced in Europe with problems in companies like Parmalat, Vivendi, Hollinger, Ahold (although principally in its U.S. business) and Royal Dutch Shell.

Donaldson justified the legislation by the need for high standards in securities markets throughout the world: “The overwhelming majority of investors – regardless of their nationality and regardless of where they're investing – demand honesty and integrity. They demand that boards of directors take their fiduciary duties seriously. They demand that companies have the internal controls they need in order to ensure the accuracy of their financial disclosures. And when there is fraud or where securities laws or regulations are violated, investors rightly expect regulatory authorities to aggressively pursue enforcement action.”

He said that he wanted U.S. regulated companies to be recognised as 'the best of the best' in terms of compliance. He acknowledged the difficulties non-U.S. companies and U.S.- based multinationals are under, saying, “We recognize that cross-border listings frequently entail issuers having to navigate duplicative or even contradictory regulations in different jurisdictions … Though the Sarbanes-Oxley Act does not provide an exemption for foreign private issuers, we will continue to be sensitive to the need to accommodate unique foreign structures and requirements.”

Critics Speak Out

Among the SEC's critics was Sir Digby Jones, Director-General of the Confederation of British Industry, who spoke of a delegation to the U.S. in December of European companies, including Cadbury Schweppes, BASF and Siemens. He said, “It is not what you say that matters, but what you do. Globalization does not mean Americanization, and although the U.S. is trying to behave like a free market, it has a long way to go yet.”

While in Europe, the debate has continued to rumble on since dominating the business pages in January, little constructive progress has been made. Europe continues on its own legislative path, imposing even more burdens on companies with multiple listings. The growth of the EU makes things ever more complex – for example while clearly not all affect every company, in 2004 alone the EU passed 2280 Regulations and 117 Directives. Much of this regulation will be furthered by domestic legislation in the 25 countries of the

EU, and often similar legislation in those European countries not in the EU, like Switzerland, Norway and Bulgaria. To add to the complexities, this legislation appears in 23 different languages.

In Europe, businesses have characterized the change from compliance being “nice to have” through “essential” to being an industry and a profession in its own right. What seems certain is that the tide will not turn back on either side of the Atlantic.