Sir Jean du Plessis, chairman of the Financial Reporting Council, rightfully questions the rationale for different corporate governance regimes for public and private companies (“Reform risks escaping public markets, regulators Says, Report, 14 November).
Historically, regulators have invoked investor protection to justify extensive regulatory requirements on public companies.Strict Rules and Extensions to Best Practice Standards — For Information
Disclosure, auditing, board composition and functioning, executive compensation in private companies that do not issue stock to the public, etc. create unjustifiable costs to businesses that do not add adequate value.
However, corporate governance is increasingly used to promote more sustainable corporate behavior for the benefit of both shareholder and non-shareholder stakeholders. Whether this trend is good or bad, it is a fact.
Therefore, the beneficiaries of modern, more stringent corporate governance regulatory regimes are not only public market investors, but other stakeholders as well. When companies create large negative externalities for their stakeholders, regardless of their public or private status, there are good reasons to cover them by corporate governance rules and recommendations. With the rise of corporate governance regimes focused on sustainability, the simple public-private dichotomy of corporations is outdated.
Suren Gomzian
Business Law Associate Professor
University of Leeds, West Yorkshire, UK
