Corporate Governance

The Role of Stock Exchanges in Corporate Governance: A Conclusion of Sorts

By J. Robert Brown

The study indicates a wide variation of practices.  There is, however, a significant split, not between common and civil law jurisdictions but between the US and the rest of the world.  It seems that the US is the one country that consistently looks, on an exclusive basis, to the stock exchanges to establish and enforce mandatory listing standards.  There is little or no residual role for regulators such as the Securities and Exchange Commission, although Rule 10A-3 arguably provides some room for Agency influence and enforcement.

In most of the rest of the world, stock exchanges have a much more limited role in determining, much less requiring, listing standards.  To the extent that corporate governance requirements exist (as opposed to comply or explain), it is left to government regulators rather than stock exchanges, on the whole, to enforce them. 

Pressure could build to change the unique model in the US, particularly as the NYSE and Nasdaq continue to expand abroad.  On the other hand, the US represents the country where mandatory requirements, even for foreign listed companies, predominate.  It therefore continues to represent the one country where foreign companies list specifically to obtain tougher mandatory listing standards, a badge of prestige and good governance in their home country.  Moreover, by relying exclusively on the stock exchanges for enforcement, the requirements may be subject to a less onerous threat of enforcement.

Stock exchange regulation is in flux.  The OECD study demonstrates the wide variety in practice.  It likewise suggests that for the time being there is plenty of room for multiple models.

Full post as published by The Race to the Bottom on September 18, 2009 (boomark / email).