Davos CEOs shun rules crackdown
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Parmalat has been the latest corporate scandal to rock investors.
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DAVOS, Switzerland (Reuters) -- Business leaders at the World Economic Forum have shunned calls for tougher regulation in the wake of a raft of corporate scandals, saying more rules would prove ineffective and cumbersome.
Billions of dollars have gone missing from the accounts of Italian food company Parmalat in Europe, and from U.S. energy trader Enron before it, leading to calls for tighter controls on companies' inner workings.
"We have an environment in which fraud and malfeasance have destroyed jobs and assets while chief executive pay goes up year after year," said William Parrett, chief executive officer of accounting firm Deloitte & Touche Tohmatsu USA.
But executives at the annual gathering of political and business leaders in the Swiss ski resort of Davos said a higher sense of moral responsibility at the boardroom level would be more effective than a rules clampdown.
"Checking boxes and signing things won't solve integrity problems," said Daniel Vasella, Chief Executive Officer of Swiss drugs firm Novartis.
James Schiro, chief executive officer of insurer Zurich Financial Services, said holding executives accountable to higher moral principles would do more good than new rules.
"Bad people make bad decisions," he said. "Ethical behavior cannot be regulated, it cannot be imposed by legislation."
In the United States, corporate scandals led in 2002 to the introduction of stiffer corporate governance rules under the Sarbanes-Oxley Act. In the latest push, the Securities and Exchange Commission last week put pressure on U.S. companies to disclose more earnings details.
In Europe, the Parmalat scandal has intensified calls for regulators to follow suit and tighten corporate controls.
"There have been huge failures in corporate governance," said, Nina Mitz, chief executive of public relations firm Financial Dynamics. "Companies have to be managed better and then the level of transparency has to be improved, and then afterward, this message has to be taken out to the public," she said.
Banks, especially, take the calls for higher corporate standards "extremely seriously," said Claudio Costamagna, head of European investment banking at Goldman Sachs.
Banks have been some of the hardest hit by the string of corporate scandals, losing millions of dollars in assets held in corrupt or failing companies.
Costamagna called for more transparency so that banks and investors can assess companies' positions. "Criminal behavior is always going to be there," he told Reuters. "The goal must be to identify it as soon as possible."
One board member at a major international bank said corporate scandals had forced him to raise the standards banks apply to clients, avoiding business with companies -- sometimes simply on a hunch and not due to evidence of wrongdoing -- to avoid reputational damage and potential losses.
"The depth of these scandals has been breathtaking, even for cynics," he said. "Now I'm more inclined to say no and I'll suffer the revenue consequences. We've clearly raised the bar."
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Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
