Unfortunately, the U.S. has been a sleeping giant tied down for too long by the ropes of Lilliputians. As that giant awakens and views the world from its own perspective, it sees a global landscape quite different from the local focus of the Lilliputians. Fortunately, Treasury Secretary Hank Paulson has issued a wake-up call that is gaining traction. And the foundation for his efforts has been carefully laid by the Reports that we featured in our May issue and which we continue to feature in this issue and in our July issue.
We featured the U.S. Chamber Report in our May issue. In this issue, we highlight the CCMR Report (often called the Paulson Report because of Secretary Paulson's support for the efforts of the Committee that produced that report) and the Bloomberg/Schumer Report. These three Reports carefully document the avoidance of our capital markets by foreign investors and the reasons for this - and recommend remedies. They focus on foreign concerns about the cost, complexity and enforcement mentality of our regulatory climate and the lack of fairness and predictability of the U.S. litigation system, both civil and criminal. Foreign investors must ask how a nation that places such emphasis on the international rule of law can tolerate such an imperfect legal system here at home.
Although Secretary Paulson's efforts have so far been focused on increasing the competitiveness of our capital markets, the reforms proposed will not only increase the attractiveness of our country to foreign businesses, but also to the global businesses already here. Attracting new business and keeping businesses here is vital to U.S. success in the global marketplace. The discipline that it requires demands that we first engage in self-examination to determine the nature of the constraints on our competitiveness and then develop strategies to remove those constraints. That self-examination was brought into focus in the Reports. Reforms required to remove the constraints are being vigorously implemented by Secretary Paulson with the enthusiastic support of those in the private sector who are also leading the charge.
It was important for us to focus your attention on these developments because every corporation needs to recognize the importance of the competitiveness effort to its own future and then to actively support those aspects that will contribute to its competitiveness in the global marketplace. Being sure that management understands the importance of that effort falls primarily on the general counsel.
As will be discussed in more detail in our July issue, the general counsel, by virtue of her legal and ethical obligations to the corporate entity, serves as a persuasive counselor to the CEO and the independent directors. She helps them to avoid pitfalls that might in hindsight give rise to criticism and possible liability.
The Reports clearly identify our regulatory and civil justice systems as the most significant constraints on our global competitiveness. The PCAOB and the SEC with the support of Secretary Paulson have already set in motion proposed changes in the regulations under Section 404 based on recommendations in the Reports for a principles-based, cost-benefit and risk-assessment oriented approach that is scalable to the size of the company. A Commission has been set up to examine the litigation and other perils that beset auditors.
Have you read the Reports and followed the efforts being made to implement their recommendations? Have your company's CEO and board been advised of these developments and their relevance to your company? Are you playing your proper role in bringing these developments and their implications to their attention?
Published June 1, 2007.