CRO POV: CRO and Europe, Part 2—More SarBox Lessons for Europeans

On two post-Christmas trips to Paris, Brussels, and London to meet with captains of Corporate Responsibility, I had a chance to marvel at both the miracle and mess of the legal harmonization process now underway in the recently-expanded European Union.  

For starters, the currency conversion to the Euro is nothing short of a divine act.  Despite the fact that it hiked prices for most goods and services, and that Denmark, Switzerland and the UK retain their own currencies, it has virtually assured that the French, Germans, Spanish, Italians and English will never again bomb and murder each other as they have over 200 times since the days of the Romans.  With one currency, the traditional neighbor-enemies’ business interests are now too inextricably intertwined to allow any one of them to take up arms.  Oh sure, the old historical hatreds are all still there (I heard some brutal French jokes when in London—the joke-tellers did not know that I am a also a French citizen).  One market and one flavor of money have destroyed the zero-sum-game mentalities that created death-fests like WWI and WWII.

But the harmonization process—creating one set of laws that covers all member countries—is a mess.  

Take for example the EU trade bill known as Rome 1.  Rome 1 would force companies to resolve disputes under the law of the country in which the dispute arose, rather than allow the company to choose the venue.  Today in contracts, British companies always specify dispute resolution devices under British law, French under French, Belgian under Belgian.  But this new EU requirement would change all that, creating a potentially poisonous disincentive for companies to sell outside their home jurisdiction.  

This proposed rule is misguided, say Corporate Responsibility leaders.  The current laws work.  They work because in today’s era of massively-increased e-commerce, cross-border transactions are the rule.  Virtually any sizeable business in the modern EU sells across borders.  Allowing a buyer company to attempt to resolve an e-commerce license dispute with a British company under the laws of, for example, of copyright-phobic Russia or trademark-confused Greece would harm the British company.  For the sake of some lawmaker’s idea of harmony, the British company’s shareholders would be hurt.  The loss of revenue would also cause the British company’s employees to lose jobs.  Two critical stakeholder groups would be damaged in the name of symmetry.  

Another unintended consequence of such an attempt at harmonization would be to stifle European capital markets’ growing lead over New York.   On January 22, 2007, New York Mayor Michael Bloomberg revealed the results of a report his office commissioned from McKinsey & Company.  The report showed that from 2002-2005, London’s financial services industry grew 4.3% to 318,000 high-paying jobs while New York shrank 0.7 percent to 328,000 jobs.  The trend was mostly due to companies choosing to avoid SarBox-related regulatory nightmares in NYC by raising capital in Europe.

Common currency and the common market work brilliantly.  But harmonizing laws on trade-dispute topics are Europe’s equivalent of Sarbanes-Oxley: a Corporate Responsibility-era attempt at clarity that will have unforeseen consequences.  And like in Sox, precious few of the consequences will be good.  

Tomorrow’s CRO Point Of View:  The Elephant in Europe’s Room