Infectious Greed: Restoring Confidence in Americas Companies

The types of monitoring and incentives used in the United States to align the interests of executives and shareholders are also used in other capitalist-oriented countries. However, important differences do occur. Indeed, in many countries , the laws, regulations, and enforcement are considerably more lax than in the United States. For example, Japan's version of the SEC is the Securities and Exchange Surveillance Commission (SESC). The SESC has only one tenth of the employees (364) as the SEC, which is considered grossly understaffed. ^[5] The SESC does not even have the power to file civil suits or bring administrative action against market participants . The securities regulator in Taiwan, the Securities and Futures Commission, does not have the authority to conduct investigations. Instead, it must rely on local prosecutors who have little experience with the market and with accounting fraud. Even more astounding is that in 2001, Italy reduced the charge of false accounting to a mere misdemeanor.

The tale of Germany's Gerhard Schmid, the former CEO of MobilCom, is telling. As CEO in 2001, Schmid transferred 70.9 million euros ($69.5 million) in new MobilCom stock to a shell company that his wife controlled. The German regulators, the German Financial Supervisory Authority, said that the actions did not fall under its jurisdiction. Therefore, it wouldn't investigate even though Schmid broke the law by not informing other executives or the board. Even though the German securities laws and enforcement are more lax than that of the United States, MobilCom's board of directors did find out about the transfer and investigated. In June 2002, the board fired Schmid and demanded the return of the money. It remains to be seen whether the company will get the money back. While U.S. executives are shown on TV in handcuffs after misdeeds, it appears that the German authorities may not even investigate Schmid.

In most countries, the laws, regulators, and enforcement are so weak that the chances of getting a conviction for corporate fraud are slim. Therefore, the lack of scandalous news in other countries may be the result of a reduced ability to catch criminals and not the result of better governance mechanisms. As a result, some see Asia, Europe, and Latin America as having been in their own confidence crises for quite some time. Consider, for example, that no Asian economy has fully recovered from its stock market bubble-bursts of the early to late 1990s.