March 28, 2018

Compliance Week – Even as Regulations Vaporize, Corporate Governance Takes Hold Globally

By Joe Mont

Amid retreat from the regulatory blitz that followed the 2008 financial crisis, corporate governance—with an opposite and equal reaction—is attracting an unprecedented level of attention from investors around the world.

That is according to the 2018 Global Trends in Corporate Governance study, recently published by Farient Advisors, an independent compensation and corporate governance firm, and the Global Governance and Executive Compensation Group, a partnership of leading advisory firms from around the world.

Published annually, the Global Trends in Corporate Governance report gathers insights into corporate governance practices and patterns and their implications for company boards. The 2018 report covered 20 countries across six continents.

Regulatory rollbacks vs. shareholder activism

A major conclusion drawn by the report: “Governance standards become global when widespread corporate abuses and/or financial crises appear, shareholders feel unsure, and governments respond with more stringent governance regulations.”

At first glance, the past year might have seen a pullback in corporate governance standards, as elections and new governments in major economies signaled a shift toward less regulation.

In the United States, for example, the Trump administration is averse to overburdening companies with rules and restrictions. In Japan, Prime Minister Shinzo Abe’s government faces criticism that it has not fully supported efforts to reform the kinds of corporate practices that may have contributed to a succession of accounting and quality control scandals at Japanese companies.

As the report notes, however, regulation is not the same as good governance. “We saw no reduction in interest by regulators, shareholders, and the public in good governance in 2017 and we foresee none in 2018,” it says.

“Quite honestly, when we started work on the 2018 report we were concerned that we would see a revision in the momentum that was gaining for the past two to three years,” says John Trentacoste, a partner at Farient. “The U.S., one of the bellwethers of corporate governance and regulation, made a pronounced decision with the Trump administration’s posture toward regulation, that it is burdensome, and returning to a laissez faire view of economics is the approach they want to take.”

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