The danger of too much regulation

A senior American judge, Leo Strine, has attacked the controversial Sarbanes-Oxley legislation and warned that further federal reforms might raise costs for companies, far outweighing the intended protective benefits for their shareholder.

His comments echo concerns raised in Australia in terms of excessive corporate regulation.

Judge Strine, who ruled against Conrad Black attempts to sell London’s The Daily Telegraph, told a European Policy Forum in London that the new corporate governance rules are having unintended consequences.

One of those consequences is the obsession with independent directors that the judge said leaves CEOs increasingly isolated as the sole decision makers on company matters.

“The emerging model is a board comprised of one insider - the CEO - who knows everything about the corporation and who has a keen interest in its future, and 10 independent directors selected precisely because they have no affiliation with or, interest in, the business or its fate,” he said.

“That is an odd group to help develop a business strategy and seems likely to function largely as a monitor, with strategy being left to the CEO and subordinates outside the board's presence.”

The full speech is at www.epfltd.org