Spitzer calls for greater institutional investor involvement
New York Attorney General Elliot Spitzer, widely known on Wall Street for having led recent legal attacks on conflicts of interest between underwriting and stock analysis at investment banks, told attendees of the PRMIA 2003 summit today that institutional investors would have “re-engage” and “exercise voice” as shareholders to improve corporate governance revealed as flawed during 2001 and 2002’s corporate scandals.
Spitzer said recent statistics showed that the holding periods of individual stocks by large shareholders had fallen and suggested that active trading was not helping to close the gap between stockholders’ interests and those of the figure of the “imperial CEO” who arose in the late 1990s. Spitzer added that tax incentives to encourage longer equity holding periods could help address the issue, and later said that legal reform in the US to allow institutional investors to sit on corporate boards could also help.
Spitzer described the 1990s as a period in which regulators and other corporate observers like corporate boards, accountants and institutional investors had ‘defined deviancy down’, or allowed small infractions to go unaccounted for, thereby making it more like likely that larger infractions would follow. “Just as one barnacle suddenly aggregates into 100 or a thousand, making the boat un-seaworthy, so one off-balance-sheet partnership at Enron…became 5, 10, 1000 and suddenly the entire ship foundered,” he said.
Spitzer said that the US corporate reform law Sarbanes-Oxley, which requires ceo’s at US public companies to legally attest the accuracy of their companies’ financial statements, may have desirable effects, though it was in some respects too early to tell.
Asked by an audience member whether criminal punishment would have been a stronger deterrent to investment banks against engaging in deceptive practices in the future, Spitzer replied the answer wouldn’t be known for five or ten years. He said that he and other regulators had chosen not to criminally indict banks after uncovering evidence of conflicts of interest because the damage to the financial system would have been too great.
Spitzer did, however, offer a warning: “I told them [investment banks] very clearly that the sword of Damocles will fall next time on whatever inhibitions I had about simply bringing the indictments that we could have brought that would have led to people being in prison.”
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Regulation
Japanese megabanks shun internal models as FRTB bites
Isda AGM: All in-scope banks opt for standardised approach to market risk; Nomura eyes IMA in 2025
CFTC chair backs easing of G-Sib surcharge in Basel endgame
Isda AGM: Fed’s proposed surcharge changes could hike client clearing cost by 80%
UK investment firms feeling the heat on prudential rules
Signs firms are falling behind FCA’s expectations on wind-down and liquidity risk management
The American way: a stress-test substitute for Basel’s IRRBB?
Bankers divided over new CCAR scenario designed to bridge supervisory gap exposed by SVB failure
Industry warns CFTC against rushing to regulate AI for trading
Vote on workplan pulled amid calls to avoid duplicating rules from other regulatory agencies
Bank of Communications moves early to meet TLAC requirements
China Construction Bank becomes sole remaining China G-Sib not to have released TLAC plans
Industry pushes to extend review for Emir active accounts rule
Fears that compressed timeframe leaves less than a year to test if controversial policy is working
Banks will not be frowned upon for discount window borrowing – Fed official
Risk Live: more banks have completed paperwork to access Fed lending facility than a year ago
Most read
- Top 10 operational risks for 2024
- The American way: a stress-test substitute for Basel’s IRRBB?
- Filling gaps in market data with optimal transport