U.S. Governance faces opposition overseas - Update

Internal Auditor, Feb, 2003 by Anne Scott

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MORE THAN HALF OF large Japanese firms recently surveyed will not adopt a corporate governance system similar to the one used in the United States. The survey, conducted by Nihon Keizai Shimbun, a leading provider of business news in Japan, reveals that most firms will continue to have insiders appoint board members and serve as auditors.

Of the 93 companies surveyed, 54 percent said they would definitely not change their system. Thirty-eight percent, however, indicated that they were undecided. Two organizations, Orix Corp. and Daiwa Securities Group Inc., said they might adopt the U.S. system.

In January, Naohiko Matsuo, director for international financial markets of Japan's Financial Services Authority, asked the U.S. Securities and Exchange Commission (SEC) to exempt Japan from parts of the Sarbanes-Oxley Act's auditor independence section, because the nation's audit firms are already required to meet Japanese auditor independence regulations. Matsuo was one of several accountants and financial regulators from Asia and Europe who met with the SEC to ask for exemptions from some of the rules found in Sarbanes-Oxley, saying that certain provisions are not compatible with their countries' laws and practices.

The new corporate governance rules are causing concern for many of the 1,300 non-U.S. firms registered with the SEC. David Wright, European Commission director of financial markets, told the SEC that the detailed audit committee requirements included in Sarbanes-Oxley would conflict with European-Union and member-state standards. Karl-Ernst Knorr, a board member of the German Chamber of Accountants, told the SEC that there are definite differences between the U.S. and German definitions of auditor services, and several German companies have registered complaints with the new rules. Porsche, the German sports-car maker, for example, announced in December that it would not apply for a listing on the New York Stock Exchange because it did not agree with the rule that requires chief executives to swear to the accuracy of the company's accounts.

The January meeting between the SEC and the financial groups is expected to be the beginning of several weeks of lobbying by non-U.S. organizations looking for Exceptions to the new corporate governance rules.