IOSCO-More accountability needed at company boards
By Rachelle Younglai
TEL AVIV, June 10 (Reuters) - More accountability is needed at company boards, global regulators said as they seek ways to restore market confidence rocked by the worst financial crisis in decades.
Lax corporate oversight has been blamed for allowing financial firms to take on excessive risks that eventually contributed to their downfall and billion-dollar government bailouts.
"I ask myself, why is it that boards didn't take proper care? One of the problems we have is that they are not accountable to anybody," Guillermo Larrain, the chairman of Chile's securities market supervisor told Reuters.
"The goal is to have an accountability framework for the board," he said.
Larrain and other securities regulators from around the world are gathered in Tel Aviv to hash out the future of regulation at the International Organizations of Securities Commissions conference.
Emerging markets like Chile and Brazil along with the United States and the European Union are grappling with how to make company boards more accountable and improve corporate governance.
The chairman of the Committee of European Securities Regulators (CESR) questioned the qualifications of many independent board directors.
"It is quite clear that in many of our financial institutions, we had independent people on boards but they were not sufficiently knowledgeable of financial affairs," CESR Chairman Eddy Wymeersch told Reuters on the sidelines of the conference.
"There is also a question of the dominant CEO... where no one dares to touch him," Wymeersch said. CESR groups national market supervisors from each of the 27 EU member states.
The financial crisis has reinvigorated shareholder activists. In the United States, shareholders have criticized boards at Bank of America Corp (BAC.N), Citigroup Inc (C.N) and other companies for not stopping management from taking huge risks that led to billions of dollars in losses.
Both banks have replaced their chairmen and are considering other changes to their boards.
In London, public furor over bank rescues and executive pay erupted earlier this year with protesters attacking former Royal Bank of Scotland (RBS.L) CEO Sir Fred Goodwin's home. Goodwin left the bank with an annual pension of around 700,000 pounds last October after the government bailed it out.
Global regulators have agreed that executive pay should be linked to long-term performance.
The U.S. Securities and Exchange Commission is considering a raft of proposals to ensure greater disclosure about a company's overall compensation approach, not just how firms compensate top executives.
The U.S. SEC has also recently proposed giving shareholders an easier way to influence the composition of the board with its chairman saying she expects that giving investors the ability to participate in board nominations will promote investor confidence as well as accountability among managers and directors.
U.S. business groups have opposed giving shareholders an easier route to board nominations, saying special interest groups would undermine companies' long term objectives.
Brazil's Securities and Exchange Commission and the head of corporate governance for Swedish pension fund Forsta AP-fonden told Reuters that giving shareholders the right to nominate directors was critical.
But Brazil's top securities regulator, Maria Helena Santana, sounded a cautionary note: "I don't think it's realistic to believe that a board will be able to prevent or avoid everything that can harm a big organization," she told Reuters.
"The reality of the companies is that nowadays they are so complex... that boards many times just cannot deal with them," she said. (Reporting by Huw Jones, Rachelle Younglai and Tova Cohen; Editing by Tim Dobbyn)
