Few executives say reform pressure comes from above

PUBLISHED : Tuesday, 28 January, 2003, 12:00am
UPDATED : Tuesday, 28 January, 2003, 12:00am

Although the recent spate of corporate scandals has shaken public trust in financial institutions, the strongest pressure for reform remains external, according to a survey of 43 North American, European and Asian financial institutions.

As few as 7 per cent of the senior executives polled electronically in November felt intense pressure from their own managers to improve corporate transparency, the Economic Intelligence Unit and PricewaterhouseCoopers found.

Another 21 per cent said they were nudged along by their boards or audit committees.

That contrasted with 30 per cent who identified regulators as the most aggressive instigators for change, and 26 per cent who felt strong urging from investors for better corporate governance.

The finding jarred with the admission by 60 per cent of the respondents that public trust in financial institutions had eroded to an extent that warrants changes in the way they were run and reported results.

More than 80 per cent of the executives believed a failure to adopt such measures would increase their costs of capital, share-price volatility or public resistance to their stock.

About 37 per cent said regulatory reforms and harmonised accounting standards were needed to restore public confidence in financial institutions.

'If financial institutions are aware of the need to address governance and disclosure issues, it is not at all obvious they are taking a leadership position on those issues,' the survey concluded.

'[There is] an indication that financial institutions may be reacting primarily to regulatory and market pressure, rather than actively looking for ways to improve governance and disclosure.'

The respondents admitted to a reluctance to disclose more information than required by regulation and attempts to keep many internal performance measures out of public purview.

Fifty-one per cent of respondents cited guarding valuable business intelligence from competitors as a common reason for non-disclosure.

Ironically, financial institutions said pressure from fund managers for rapid and consistent quarterly earnings growth was largely to blame for their resistance to greater corporate transparency.

The researchers urged the financial industry to support regulators' efforts to formulate consistent international accounting principles.

Industry-wide standards are also to be developed and non-financial disclosure strengthened.

Financial institutions and regulators should collaborate on the development of Internet-based reporting standards to improve the 'timeliness and relevance of reporting'.

Graphic: pres28gbz