The impact of changing corporate governance norms on economic crime

Date01 October 2004
Published date01 October 2004
Pages347-352
DOIhttps://doi.org/10.1108/13590790410809293
AuthorStilpon Nestor
Subject MatterAccounting & finance
The Impact of Changing Corporate Governance
Norms on Economic Crime
Stilpon Nestor
INTRODUTION
Leo Goldschmidt's paper in this issue has focused on
how boards address con¯icts of interest inherent in
the corporate structure. He presented the general
toolbox of corporate governance for addressing these
`dysfunctionalities' which are often linked to criminal
behaviour within a corporation. This short paper
addresses the speci®c mechanisms through which cor-
porate governance impacts on economic crime, when
perpetrated by corporate agents. These mechanisms
are the products of an emerging framework of govern-
ance norms. While, in the past, speci®c legal rules
dealing with corporations were largely the product of
national legal orders, the emerging normative frame-
work is global, in substance and increasingly in form.
It is also market-based, shaped in global capital
markets through the interaction of global investors
and companies that sell products, employ labour
and seek capital in many jurisdictions. The emer-
gence, in less than ®ve years since their adoption, of
the Organisation for Economic Co-operation and
Development (OECD) Principles of Corporate
Governance as a common language and blueprint
for public policy eorts around the world testi®es
to this globalisation of the normative framework
for corporate governance.
CORPORATE GOVERNANCE NORMS
AND THEIR IMPACT ON ECONOMIC
CRIME
Over the last few years, listed companies around the
world have been faced with nothing short of a corpo-
rate governance revolution. First, there was the US
response to the bubble era scandals. The Sarbanes-
Oxley Act (SOX) and its implementing regulations
by the Securities and Exchange Commission (SEC)
and the tough new listing requirements the New
York Stock Exchange (NYSE) and the National Asso-
ciation of Securities Dealers Automated Quotation
(NASDAQ) mark the onset of the new regulatory
approach.
European policy makers have been beating a
similar path. Marconi, France Telecom, Vivendi,
ABB, Ahold and, last but not least, Parmalat, were
strong reminders that large corporate governance
failures could also happen this side of the Atlantic.
New laws appeared inter alia in France (in 2001 and
2003), in Germany (1998, 2002) Greece (2002) and in
Italy (2003). In May 2003, the EU Commission issued
a comprehensive Corporate Governance Action Plan
(ECAP), which sets the tone of reform for the years
to come. ECAP places national voluntary codes at
the heart of European corporate governance.
By putting the accent on codes, the Commission is
re¯ecting the ongoing spread of voluntary, market-
based approaches among member countries. There
are more than 40 such codes in the EU, with only
one member state not having at least one code. But
having a set of voluntary guidelines in the form of
a code is not enough. ECAP postulates the adoption
of a comply-or-explain framework, an intermediate
normative category pioneered in the UK during
the 1990s that mandates benchmarking of individual
governance arrangements with a clearly codi®ed
body of principles. One might call it `soft law':
`soft', in the sense that there can be deviation from
the substantive norm; but `law', as it requires com-
panies to explain any deviation, lest they face legal
sanctions. In addition to the UK, comply-or-
explain norms have now been adopted in Germany,
Italy, France and the Netherlands.
The task in this paper is to link corporate govern-
ance norms, as they apply to listed companies, with
economic crime. For this purpose, one can distinguish
two types of economic crimes that are likely to occur
within a corporate setting:
Economic crimes that have a direct bearing on
the way a corporation manages its resources
and distributes economic returns among its dif-
ferent constituencies. These are the so-called
`governance-related crimes' as their eects are
primarily felt within the economic domain of
a speci®c company, ie among its managers, direc-
tors, shareholders and employees. They include
accounting fraud, insider trading and self-dealing.
Economic crimes that are perpetrated within a
Page 347
Journal of Financial Crime Ð Vol. 11 No. 4
Journal of Financial Crime
Vol.11,No. 4,2004,pp. 347 ±352
#HenryStewart Publications
ISSN 1359-0790

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