American Law Institute

“Regulatory Competition and Subsidiarity
in Corporate Governance
in a Transatlantic Perspective”

12th July 2004, Bibliotheque Solvay, Brussels

European Corporate Governance Institute
Dinner speech by Frits Bolkestein
Member of the European Commission responsible for the Internal Market, Taxation and Customs
Frits Bolkestein, Member of the European Commission responsible for the Internal Market, Taxation and Customs

I am delighted to be with you this evening at the launch of the Transatlantic Corporate Governance Dialogue. This excellent initiative has the advantage of gathering in one and the same room leading academics from law, economics and finance; regulators; law makers; corporate leaders; investors and other corporate constituencies from both sides of the Atlantic. I should like to congratulate ECGI (The European Corporate Governance Institute) and ALI (the American Law Institute) for their imaginative approach, which has the Commission’s full support.

Corporate Governance is high on political agendas on both sides of the Atlantic. This reflects not only painful and costly past experiences but a growing awareness that a sound corporate governance framework is a key condition for liquid capital markets which function well. For economic confidence. For convincing investors to invest. Hence for the whole economy. And in the end, that is the most important consideration. Strengthening our economies through strong capital markets.

Until recently, however, there was a tendency for both sides to look at these issues in splendid isolation from each other, at best regarding what was going on in the other as of mild interest, at worst ignoring it. The rationale for the Dialogue that we have had today is a realisation that this is not good enough, and that we have to engage with each other.


Because our economies are strongly interdependent. The EU and the US are the world’s largest markets, leading players in the WTO and each others principal source of foreign direct investment. The transatlantic economy employs over 12 million workers. And let us recall that capital markets, defined here as bonds, equities and bank assets amount to 50 trillion dollars in both the EU and the US: equivalent to around 6 times GDP for both of us. We are also responsible for 60% of world trade in commercial services. Whatever we do on one side of the Atlantic will inevitably impact on the other. We cannot avoid this regulatory spillover. Sarbanes-Oxley was not an exception: it is the ‘rule’. What we do in the EU affects the US and vice versa. And these interdependencies are increasing. Therefore, transatlantic cooperation on corporate governance is not only mutually beneficial. It is an economic, political and regulatory necessity.

What are the elements required for effective cooperation and work sharing? There is no mystery here: they are exactly the same elements required in the rest of our financial relationship. There are four of them.

(1) Mutual understanding

We need to understand each other, to understand each other’s approaches, systems and legislation. We need to respect our different ways of doing things. Our different cultures. In some cases, mutual understanding can lead to an appreciation of where one system or the other has developed a more sophisticated approach and promote the best regulatory practice.

(2) Information flow and transparency

Mutual understanding of existing rules is not sufficient per se. We must also consult upstream on the development of new rules or regulatory approaches and to ensure information flow and transparency. This is crucial for market and consumer ‘buy in’ to the process and results. Crucial for confidence building. I would recall that on the Sarbanes-Oxley Act, there was no consultation whatsoever with third countries which resulted in difficulties which it has taken a good deal of time and effort to resolve.

(3) Convergence

Convergence of approach is a key element to combine with mutual understanding and information flow. We need to make sure that, on both sides of the Atlantic, we are aiming at the same basic goals. Wherever possible, we should aim to converge our thinking. On corporate governance for instance, shareholders want to be clear that in Europe and America, we have the same underlying principles of effective management of boards.

This will, of course, not always be possible. But we should certainly do this whenever we can.

(4) Equivalence

Convergence is a good solution, but it is not practicable in all areas. In some cases, what is important is not to take identical approaches, but to agree on the equivalence of our approaches which basically share the same goal. Our boards do not necessarily have to be set up exactly the same way for them to guarantee effective governance.

Working on the basis of equivalence is not an admission of defeat: it is a healthy recognition by both sides that there can be more than one way to skin a cat.

In practice, the determination of equivalence is not easy. We need a full toolkit of techniques and process options. One size will not fit all problems.

The Transatlantic Corporate Governance Dialogue is aimed precisely at contributing to this approach. It will complement the other Dialogues that we have with the United States – notably the Financial Markets Regulatory Dialogue.

Today’s conference was devoted to the examination of the experience of the EU and the US and the potential implications for respectively the US and the EU.

The flow of information, through the outstanding speeches delivered and the very lively debates which followed, has already begun.

This first successful day of the Transatlantic Corporate Governance Dialogue will pave the way for further enriching conferences. A similar conference will be held next year in the United States. Another conference may be held in Japan in 2006.

Kennedy said in his inaugural address ‘all this will not be finished in the first one hundred days, nor in the life of this administration, nor even perhaps in our lifetime on this planet. But let us begin’.

So with all my best wishes of success for the work as it continues, bon appétit !

The ECGI is grateful for support for the Launch Conference from
Telecom Italia
The European Commission
Goldman Sachs International