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26 Mar. 2010 | Comments (0)

Now that all the excitement about health care reform in has begun to dissipate in Washington, D.C., the focus is back on financial regulatory reform. Or so it seems. According to the latest comments [Read The Hill blog’s coverage.] coming out of Senate Banking Committee Republican Ranking Member Richard Shelby’s (R-Alabama) camp on Friday, there’s a chance for a bill to clear the full Senate before Memorial Day. This follows the news that two fellow Republicans on that same committee – Bob Corker of Kentucky and Judd Gregg of New Hampshire – announced Monday that the Democratic bill could receive strong bipartisan support in the Senate. And then there were Treasury Secretary Timothy Geithner’s comments [Read here.] on Monday to the American Enterprise Institute on Financial Reform. They are as eye-opening and harsh as his predecessor, Henry Paulson, in the fall of 2008 when he revealed just how deep the financial crisis was. “Even with improving credit markets and reduced borrowing costs, when you talk to businesses across the country, they tell you that banks are lending less in part because they're not certain what new rules are coming,” Geithner said. “If you delay reform, you force them to live with that continued uncertainty. “Reform is not going to go away. If we don't get a strong bill now, here's what will happen: We're not going to move on to other things. We're going to keep fighting for reform. We're going to keep working with those who want a strong bill enacted into law. “But in the meantime, the rest of the world is going to move on without us. If we don't lead, others will. They will move to protect their citizens and their economies with rules that fit their needs.” Once again, I have to ask myself what it all means for boards and management of public companies, or for that matter, all companies. The uncertainty surrounding financial regulatory reform is certainly wreaking havoc with boards. That was evident at KPMG’s Audit Committee Institute Sixth Annual Audit Committee Issues Conference held in Miami and Phoenix in February. (The event was co-sponsored by the National Association of Corporate Directors and Weil Gotshal & Manges LLP.) Conference attendees, which included mostly audit committee members, listed “uncertainties of economic/legislative environments” as the No. 1 concern for 2010. “Business leaders express concern about the long-term health of the U.S. economy…as well as the government’s ability to address these issues. At the same time, they are concerned about the impact of legislative/regulatory reforms and the possible ‘overregulation’ of business,” according to ACI’s Highlights from the 6th Annual Audit Committee Issues Conference: Setting the 2010 Agenda. It quotes some directors who attended the conference on the matter of the economy and the federal government’s proposed reforms. “On so many major public policy initiatives, the government simply doesn’t know where it wants to go. It’s difficult to commit capital in this environment,” one director was quoted. Geithner’s speech could lead some to believe there is broad support for financial regulatory reform, however it’s the details that seem to be holding things up. “At this stage, the debate is not really about financial reform or no reform; about re-regulation or deregulation,” he told the AEI gathering.  “It's a debate about ideas, and about the best ways to improve an undeniably flawed system; about the role of government; about the balance between efficiency and stability; about how to protect consumer choice and financial innovation, while constraining predation and fraud; and about getting the incentives right. The Conference Board Governance Center has issued some recent thought leadership on the effect financial regulatory reform could have on corporate governance. The Director Notes report From Compliance Governance to Strategic Governance, [Read report, membership required.] part of a series on the 2010 proxy season, points out that the financial crisis demonstrated that corporate governance should be more than just a compliance exercise. It goes on to state that in this proxy season, corporate boards will come under increasing pressure to explain how they integrate governance with performance and long-term strategic business goals. With both companies and investors under pressure and looking for redemption, the 2010 annual meeting season will be a shadow referendum on the crisis and an inflection point in the evolution of corporate governance. This particular report was written by John Wilcox, chair of Sodali Ltd. and former corporate governance head of TIAA-CREF.
  • About the Author:Gary Larkin

    Gary Larkin

    Gary Larkin is a research associate in the corporate leadership department at The Conference Board in New York. His research focuses on corporate governance, including succession planning, board compo…

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