Has the Regulatory Pendulum Swung Too Far?
Differing and seasoned perspectives were on the agenda at the latest ICD Ontario Chapter luncheon, held June 20th at the Toronto Board of Trade. Panelists David Wilson, Chair of the Ontario Securities Commission, Dominic D’Alessandro, President and CEO of Manulife Financial, and David Beatty, Managing Director of the Canadian Coalition for Good Governance and Professor at the Rotman School of Management, each provided their perspectives on the effect on the work of corporate directors or regulations to date.
According to Dominic D’Alessandro, good corporate governance exists in Canada and the pendulum hasn’t swung too far…yet. He argued that, despite the “vigorous and effective response” by legislators to the corporate and accounting scandals, SOX 404 has been clearly drawn up in haste. In short, interpretation of the requirement to attest to the “adequateness of internal controls has been taken to ridiculous extremes”, and burdening boards in red tape is just not conducive to running an efficient organization. “Crooks will be crooks,” he said, and you simply cannot legislate integrity – the best approach is through ongoing, professional vigilance and punishment of wrongdoers.
David Wilson also agrees that the regulatory pendulum had not swung too far, and that corporate governance structures in Canada are sound. In contrast, however, the OSC sees four key areas where the improvements in governance are being made: 1) rules aimed at the governance of closely controlled companies in Canada are now being studied at a national level, 2) for the benefits of shareholders, disclosure of executive compensation should offer greater context and clarity, 3) in less than 30 days’ time, an independent review committee will release a minimum set of requirements for all publicly offered investment funds, and 4) based on a March 2006 proposal by the CSA, a new set of regulations will “improve the transparency, quality and reliability of financial reporting, without unduly burdening publicly traded companies”. Companies are now required to report on and certify the effectiveness of internal controls, but no longer via external auditors.