My colleagues Steven Bank and George S. Georgiev teach executive compensation and corporate governance at the University of California, Los Angeles School of Law and are affiliated with UCLA’s Lowell Milken Institute for Business Law and Policy. They've got an op-ed in The Globe and Mail on how the SEC's new executive compensation rules will affect not just USA but also Canadian corporations:
The primary U.S. market regulator, the Securities and Exchange Commission, served up ... far-reaching rules on bonuses and other incentive-based compensation for all firms listed on U.S. stock exchanges, which include about 300 of Canada’s best-known multinational companies as well as more than 600 other international companies. This was a curious choice since the United States has traditionally allowed non-U.S. companies to follow their home-country rules on executive compensation and corporate governance instead of the SEC’s rules.
Even worse than the geographic overreach, however, is the fact the SEC’s new rules are likely to prove expensive, counterproductive and easy to manipulate. ...
Unlike U.S. companies, Canadian and other international companies have an even easier way out. They can simply choose to delist from U.S. exchanges and rely solely on their home-market listing. In fact, many non-U.S. companies did just that when they were faced with complex new corporate governance rules under the Sarbanes-Oxley Act in the wake of the Enron and WorldCom scandals of the early 2000s. Studies show that a U.S. listing confers advantages on non-U.S. companies, but the burden from the new rules may well outweigh these advantages, especially at a time when international markets are becoming increasingly competitive.
Of course, this is just one more example of the general phenomenon of which I wrote in Corporate Governance and U.S. Capital Market Competitiveness (October 22, 2010). Available at SSRN: http://ssrn.com/abstract=1696303:
During the first half of the last decade, evidence accumulated that the U.S. capital markets were becoming less competitive relative to their major competitors. The evidence reviewed herein confirms that it was not corporate governance as such that was the problem, but rather corporate governance regulation. In particular, attention focused on such issues as the massive growth in corporate and securities litigation risk and the increasing complexity and cost of the U.S. regulatory scheme.
Tentative efforts towards deregulation largely fell by the wayside in the wake of the financial crisis of 2007-2008. Instead, massive new regulations came into being, especially in the Dodd Frank Act. The competitive position of U.S. capital markets, however, continues to decline.
This essay argues that litigation and regulatory reform remain essential if U.S. capital markets are to retain their leadership position. Unfortunately, the article concludes that federal corporate governance regulation follows a ratchet effect, in which the regulatory scheme becomes more complex with each financial crisis. If so, significant reform may be difficult to achieve.
