USA TODAY: Foreign firms aim for better oversight

By Edward Iwata,

Posted 15/03/2004   

No longer just a U.S. phenomenon, the corporate governance movement is gaining momentum in Europe, Asia and other fast-growing business regions.

Despite the scandals involving Parmalat and Royal Dutch/Shell Group, hundreds of foreign companies are adopting watchdog practices including independent boards and stricter auditing rules, governance experts say.

Why? Because more nations realize they need corporate governance policies to fight fraud, grow their economies and attract U.S. investment dollars.

"There's been a real revolution globally," says Peter Clapman, legal counsel for the Teachers Insurance and Annuity-College Retirement Equities Fund (TIAA-CREF).

In recent years, U.S. pension and mutual funds — including TIAA-CREF, the California Public Employees' Retirement System and Fidelity — have been pressuring foreign firms on governance issues.

Among the signs of progress:

• Worldwide networks. Only a handful of pension and investment funds belonged to the International Corporate Governance Network when it was founded a decade ago.

But the group now has 300 members that oversee assets of more than $10 trillion.

"More people realize there are basic principles that apply to all companies, not just U.S. companies," says Clapman, former chairman of the group.

• Shareholder voting systems. Institutional Shareholder Services, the largest U.S. proxy advisory firm, is working with J.P. Morgan Chase and other banks to build a global system for shareholders to vote on proxy issues by the Internet and telephone, says Jamie Heard, vice chairman.

ISS has shareholder clients in 50 countries.

• Other nations improve. Some countries are taking the lead on certain issues. British, German and Dutch companies split the CEO and chairman roles, so independent boards can monitor firms without meddling from CEOs.

Overseas shareholders also are stepping up their game, with former chairman Philip Watts of Royal Dutch/Shell Group resigning recently in part because of shareholders outraged over the firm's accounting problems.

Many obstacles exist, though. Key European nations, such as Italy, suffer from poor corporate governance practices. In Japan, clubby industrial networks block governance changes.

But pressure is growing for foreign companies to shape up.

The European Union will require its companies to comply with International Accounting Standards Board rules in 2005.

"We're looking for greater (disclosure of information) and greater accountability," Heard says. "Put those together, and you've solved the governance problem."