* The Effects of Regulatory Responses to the Recent Corporate Failures Aim:
I. To consider if the responses to the recent corporate failures are yielding the desired results. Background:
1. The development of Bretton Woods and Glass Steagull Agreements were in response to post WWII financial crisis. 2. The Cadbury Report came about as response the financial crisis of the 90s. 3. Following the Cadbury Report was the Greenbury Report which was advanced to curb the then prevalent management and executive misbehaviour. 4. The Cadbury and Greenbury Reports eventually evolved into what is known today as the Comply or Explain Code in the UK. 5. The Banking Act 2006 (UK), FSMA (UK) Sarbanes-Oxley Act (US) and Dodd-Frank Act (US) are also legislative reactions to present Financial Crisis. 6. Currently, the FSA is undergoing restructuring and/ or reorganisation due to its shortcomings in handling the present financial crisis.
Various corporate governance procedures have evolved over the years to manage financial crisis and respond to corporate misbehaviours; starting from the Glass-Steagall and Bretton Woods agreements which were developed to deliver a stable economy after the World War II to the Cadbury and Greenbury reports, both of which gave birth to the Combined Code. Infact, the passage of the Sarbanes-Oxley Act in the US was accelerated to curb the prevalent financial crisis and management impropriety which became even more apparent with the failure of Enron and Worldcom
Yet in managing the financial crisis, these corporate governance procedures suffer massive setbacks and serious inadequacies; the Sarbanes-Oxley Act, for example, is generating an outcry for being too expensive to comply with and that is without prejudice to the view that it stifles the improvement of the capital market. Similarly, the FSA has been largely blamed for the recent regulatory shortcomings in the UK and it is currently undergoing reorganisation just as Sir Derek Higgs who was credit with articulating the Combined Code, once expressed dissatisfaction with its implementation. But contrary to the view that preventive measures in regulation are often hindered by lack of information, evidence abounds to show that in reality, financial danger is always foreseen; for example, in 80s British Banks were cautioned against a likely crash, just as it was evident from Sir Bingham Report on BCCI that there were early indications of the coming disaster, thus, regulators as well as corporate governance cannot pretend to be oblivious of the regulatory loopholes fostered by securitisation, off-balance sheet instruments and other creative accounting methods being employed by banks and other firms to appear safe and sound when they are in fact not. It was said about Northern Rock that its operating model was too risky for anybody to say that its failure was not foretold. Indeed, regulators can no longer claim to suffer from information deficiency because of the availability of insight provided by statistics and abundance of knowledge. So if financial crisis, as seen over the years, has proved economically disastrous and its management very expensive and difficult to undertake and if evidence abounds that there are always signals to these crises, should it, perhaps, not be considered more prudent and advantageous to prevent than wait for them to occur or escalate? Did the regulators foresee the failure of some of those institutions? If so, was there anything they could have done to prevent the failures and then avert the consequent contagion? Why do the central banks and the financial safety network have to wait for the system to crash before they take actions? Could it be that they do not have sufficient regulatory instruments to contain and/ or prevent the failure of those firms, even when and/ or if they caught wind of it early enough? Since financial problems develop in times of economic boom, when...