The stock market has gained extraordinary significance over recent years. Large proportions of society invest in equity markets in order to save for their retirement. Various bodies exist to fight abuses by executives of publicly owned companies. Parliament has created the New Zealand Securities Commission (SEC), an independent Crown entity in terms of the Crown Entities Act 2004, to fight ‘white collar fraud’ and the abuse of business ethics and the law. Numerous scandals worldwide but especially the Enron case in the United States of America (USA) at the beginning of this decade shocked investors and led to a decrease in shareholder confidence. Investors lost their trust in corporate governance techniques and the credibility of managements.
In the 1930s, in the aftermath of the 1929 stock exchange crash in the USA, Berle and Means ascertained the underlying problem of corporate governance as the separation of ownership and power. In accordance with Adam Smith, they explained that, as a basic human trait, executives never apply the same diligence when running a company as the owner of the same company might apply. This fundamental understanding is the reason for the necessity of corporate governance rules. As a pro-tection of shareholder interests, the interests of the owners of the company, the regulator tries to set standards which create investor confidence and security.
By now the large majority of nations have implemented some form of corporate gov-ernance regime. The US government has tried to counter fraud and investor scepticism by adopting a statutory corporate governance code called the Sarbanes-Oxley Act 2002 (SOX). New Zealand, on the other hand, opted for a more voluntary ap-proach to governance regulation based on principles rather than legal norms, which impose no legal obligation on affected parties. Farrar disapproves of his approach and calls New Zealand’s principles “bland provisions”. He fears a decrease of investments in the New Zealand market if it does not follow the US lead quickly.
This paper tries to evaluate Farrar’s proposal of imitating the US example. Section II portrays corporate governance regulations currently in place in New Zealand. It focuses predominantly on listed public companies and shows shortfalls in this area. Section III illuminates SOX and its provisions. The paper provides explanations ma-jor fraud scandals in the USA and discusses in the light of these findings the effectuality of SOX. It concludes that the US legislation has numerous pitfalls and fails to achieve necessary fraud prevention. Based on this understanding, Section IV discusses the advantages and disadvantages of a principle-based approach to corporate governance regulation. It is shown how selfregulation paired with a strong legal framework provides sufficient protection for investors and how such an approach values the theory of free markets. This author believes strongly in the efficiency of free, unregulated markets and eventually concludes with a few humble suggestions on how New Zealand might change their corporate governance regime.
Inhaltsverzeichnis (Table of Contents)
- I. INTRODUCTION
- II. NEW ZEALAND'S APPROACH TO THE CODIFICATION OF CORPORATE GOVERNANCE
- A. The New Zealand Corporate Market
- B. Corporate Governance in New Zealand: Principles and Guidelines
- C. NZX Corporate Governance Best Practice Code
- D. Attracting International Investments
- III. THE SARBANES-OXLEY ACT 2002 – PRIME EXAMPLE OF THE STRCT RULE-BASED APPROACH
- A. Introduction
- B. Historical Context
- C. Causes of the Market Failure
- 1. Introduction
- 2. Agency Costs
- 3. Bubble Atmosphere
- 4. Gatekeeper Failure
- D. Brief Account of Regulations
- 1. Introduction
- 2. Scope of Application
- 3. Regulations
- a. Internal Monitoring
- b. Gatekeeper Regulation
- c. Regulation of Insider Misconduct
- 4. Increase in Financial Disclosure
- 5. Fraud Liability
- E. Evaluation of SOX
- 1. Introduction
- 2. Effectiveness of Regulations
- a. Independent Directors
- b. Whistleblowers
- c. Gatekeeper Regulations
- d. Increased Disclosure
- e. Increased Liability
- 3. Higher Costs
- a. Agency Costs
- b. The Effect of Stricter Liability
- c. Information Costs
- 4. Conclusion
- IV. WHY COMPLY-OR-EXPLAIN REASONS BEHIND THE SPATE OF INCORPORATIONS
- A. Introduction
- B. Reasons for Substantive Regulation
- C. Advantages of Self-Regulation
- 1. The Theory of Free Markets
- 2. Free Markets in the Common Law World
- 3. Evaluation of the Principle-Based Approach in the light of the Free-Market Theory
- a. Flexibility
- b. Investor Education
- c. Considering New Zealand Circumstances
- d. Comply-or-Explain in New Zealand
- V. SUMMARY AND CONCLUDING REMARKS
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This paper aims to evaluate the proposal of imitating the US model of corporate governance, specifically the Sarbanes-Oxley Act 2002 (SOX), in New Zealand. The paper focuses on comparing the strict rule-based approach of SOX with the more principle-based approach employed in New Zealand. It examines the effectiveness and drawbacks of each approach, considering factors such as investor confidence, fraud prevention, and the role of free markets.
- Corporate Governance in New Zealand and the US
- The Sarbanes-Oxley Act 2002 (SOX)
- Rule-Based vs. Principle-Based Approaches to Corporate Governance
- The Role of Free Markets in Corporate Governance
- Investor Protection and Confidence
Zusammenfassung der Kapitel (Chapter Summaries)
Section II provides an overview of corporate governance regulations currently in place in New Zealand, highlighting the dominant role of small to medium-sized companies and focusing on listed public companies. It addresses potential shortfalls in the current framework. Section III delves into the Sarbanes-Oxley Act 2002 (SOX) and its provisions, analyzing major fraud scandals in the USA and discussing the effectiveness of SOX in achieving fraud prevention. It concludes that SOX has numerous drawbacks and fails to effectively prevent fraud. Section IV explores the advantages and disadvantages of a principle-based approach to corporate governance regulation, advocating for the efficiency of free, unregulated markets and highlighting the importance of a strong legal framework in investor protection. It discusses the "comply-or-explain" model employed in New Zealand.
Schlüsselwörter (Keywords)
The paper focuses on corporate governance, particularly examining the contrasting approaches of codification (SOX) and self-regulation in New Zealand. Key themes include investor protection, fraud prevention, free markets, the separation of ownership and control, agency costs, and the effectiveness of different regulatory frameworks. The paper also considers the influence of the Enron scandal and the role of gatekeepers in corporate governance.
- Citation du texte
- Lars Haverkamp (Auteur), 2006, Corporate Governance: Codification or Self-Regulation? , Munich, GRIN Verlag, https://www.grin.com/document/82884
