Governing Corporations in a Shrinking World
02/22/2006
Lee Hudson Teslik,
Council on Foreign Relations
Introduction
As corporations increasingly operate across borders, the rules regulating their behavior are becoming relevant to a rapidly growing pool of investors. Corporate governance rules can differ sharply from nation to nation, posing risks not only for investors but for companies seeking access to financial markets. Regulatory bodies across the world are now seeking to align global standards on accounting and other matters in order to increase the confidence of international investors and attract business to national financial markets.
Many experts agree a common set of broadly supported governance principles would be helpful, both as a model for countries trying to develop national corporate governance laws, and as a guide to help investors judge the laws of countries in which they invest. But they acknowledge the difficulty in reaching this goal. Regulatory bodies like the U.S. Securities and Exchange Commission (SEC) are instead focusing on "converging" standards to add flexibility to market structures while maintaining some essential national rules.
According to a 2002 CFR special report by James Shinn and Peter Gourevitch, encouraging corporate governance standards abroad is more than just good business—it's also good foreign policy. Solid standards, the report says, "defuse many trade disputes and reduce the likelihood of destabilizing financial meltdowns," something which benefits all Americans, not just those with direct holdings overseas.
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