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Corporate Governance Key Concepts

Codes of Conduct


Codes of Conduct

The global financial crisis has sparked renewed interest in codes of conduct that are intended to curb the excesses that arguably led to the crisis. There are increasing calls for these codes to be mandatory, for the rules to be tightened, and for independent supervision. Concern has focused on the large bonuses that investment bankers received and which, it is argued, led to excessive risk taking. The financial sector in countries around the world is rushing to adapt new codes before governments introduce legislation. Thus in the Netherlands, the Bankers’ Association has said that it will implement a code of conduct for banks in 2010 that will limit bonuses and strengthen corporate governance. The French and German governments appear intent on introducing measures to cap bankers’ pay unless the industry adopts strict codes of conduct. Thus President Sarkozy of France has said Paris will legislate to curb bankers’ pay unless the banks agree to a code of conduct, while the German Chancellor Angela Merkel has called for a gap of four years before bankers receive most of their bonuses. Institutional investors are also leading the drive to reform. Thus in 2009, the Association of British Insurers (ABI) in the UK criticized a voluntary code of conduct for executive pay consultants, who are employed as nonexecutive directors and sit on the remuneration committees of listed businesses. The ABI said the new rules were too loose and did not address concerns about the independence of these consultants.

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