Tuesday, February 10, 2009

E&Y CEO Calls for International Corporate Governance Standards

In a February 5, 2009 speech to to the Commonwealth Club, one of the nation's oldest an largest public affairs forums, James S. Turley, Chairman and CEO of Ernst & Young LLP, laid out his thoughts on the causes of the current global economic crisis, and set forth some of his recommendations.

First, Turley calls for "providing additional liquidity, raising capital, and a cleaning up of banks’ balance sheets through a variety of public and private sector initiatives." He notes that, although considerable action has taken place on the first two items, but until bad assets on bank balance sheets are dealt with, normal lending will not resume. Second, he calls for prompt government economic assistance "with a focus on real economic stimulus and should avoid using it as a mechanism to fund favored programs that don’t have much immediate connection to the economy."

Turley sees the current crisis as an opportunity for global regulatory reform, an opportunity to correct inconsistencies in financial regulation. Notably, one reform Turley proposes focuses on the need the need for strong corporate governance principles, and he calls for the G-20 to encourage the implementation of international corporate governance principles around the world as well as other internationally agreed upon standards, such as IFRS:

Strong corporate governance is fundamental to the health of a company, and to the well-being of a country’s economy. The OECD Corporate Governance Principles are the internationally recognized standard of best practice for corporate governance. They were first formulated ten years ago and refreshed five years ago. They contain important principles that speak to shareholder rights, independent board members, the responsibilities of boards and audit committees, and even what we would call whistle-blower programs. Yet many countries around the world do not have measures in place that match up with these principles. It really is pretty much all over the map.

. . .

Even though corporate governance practices that promote shareholder rights, independent board members and whistle-blower programs are embedded in international corporate governance principles, many countries do not have these measures in place.

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The fact is…corporate governance has a real effect on how companies in any jurisdiction operate…yet the differences in practices aren’t well understood by the investing public who spread their money around the globe. The question is…would we, or would we not, be better off if governance practices were stronger and more aligned around the world. I think the answer is we very much would.

Among his other recommendations, Mr. Turley also calls for reforms in the regulation of the audit profession self-regulation in the U.S. and around the globe as they relate to audits of public interest entities, and the formation of global capital markets working group.

The full text of Mr. Turley's February 5, 2009 speech is available to Forum Members on the Directors' Resource Center at: http://www.mfdf.com/members/documents/JSTCommonwealthClubFinal.pdf (Password required)