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-- by Amb. Giampiero Massolo, Italian Prime Minister’s Personal Representative for the G8 and G20

Secretary General of the Italian Ministry of Foreign Affairs


     The Global Standard/Lecce framework aims to respond to a need acutely felt since the beginning of the global financial and economic crisis. One of the things we have discovered through these troubled times is that the extent of irresponsible risk taking, of tax evasion, of free riding – sometimes verging on fraud, sometimes going well beyond it – has proved to be unsustainable. The costs and the losses imposed by this type of behaviour on the global community, on consumers, investors, workers and taxpayers are unacceptable.
     In promoting the Global Standard, the Italian Government aims to restore sound principles of prudence, transparency and integrity. As initially underlined by Economy and Finance Minister Tremonti, the Global Standard is meant to recreate a standard of ethical behaviour in international economic activity, in the same way that adherence to the Gold Standard was a “good housekeeping seal of approval” for governments around the world until World War One.
     It is clear that we are not trying to reinvent the wheel: we are rather trying to bring back, to coordinate, improve and spread around the world a series of rules and codes of conduct, not all of which are legally binding, which have for the most part existed for some time but were neglected in the euphoria of the past decade. The Global Standard is part of the international effort to restore growth on solid basis, providing meaningful and effective rules to govern globalisation and to prevent the resurgence of the problems we have encountered in the last two years.
     The Global Standard/Lecce Framework is a process which started at the beginning of this year. G8 Finance Ministers agreed on the objectives of this strategy in June at their meeting in Lecce. We have been particularly pleased by the warm reception given at the L’Aquila Summit by world Leaders to the ideas behind the Lecce Framework. The political endorsement of this initiative at the highest level is particularly important.
     The German Chancellor Angela Merkel has also shared the idea that agreed principles and standards must be at the centre of global governance to ensure stability in the long run. She therefore proposed to develop a “Charter for Sustainable economic activity”, indicating the common principles and standards on propriety, integrity and transparency of the Lecce Framework as one of its main pillars. With a view to bringing the Lecce Framework and the Charter to the largest possible audience, our two governments are now working together with the OECD and the G20 Presidency to bring forward this issue to the Pittsburgh Summit in September. Rules on international conduct must be widely accepted and enforced internationally in order to be effective. That is why we would like to share them with the largest possible number of States, to avoid a race to the bottom and regulatory arbitrage between jurisdictions.
     The discussion will also continue on a technical and academic level, involving civil society in the debate, following the “bottom up” approach of the last few months, in order to receive the best information, advice and proposals from the international community of professionals, professors and civil servants.

-- Kimon Valaskakis PhD
Kimon Valaskakis is a former Canadian Ambassador to the OECD President of the New School of Athens and emeritus professor of economics at the University of Montreal.

Without Law there is no civilization. This principle is well known and applied in all national states where a central organization called a ‘government’ establishes and enforces rules to regulate the economy and society. Yet, at the international level, we seem to lay aside this idea and under the system of national sovereignty, inherited from the 1648 Treaty of Westphalia, each state is free to accept or reject international rules, by signing or not signing treaties.
Even more surprising, private sector actors, such as individuals, corporations and special interest groups, although submitted to national rules, can well escape from the latter by moving to other jurisdictions. This explains the proliferation of tax havens, outsourcing to low wage areas and environmental dumps. When these private sector agents are asked to show ‘corporate social responsibility’ it is mainly through ‘guidelines’, ‘frameworks’ and general recommendations which are left optional. In spite of globalization, very few, if any, intergovernmental organizations have the power to exert any direct authority on these private actors. Most IGOs are designed to discipline signatory governments by moral suasion or in some cases, sanctions, but not corporations which remain completely unregulated at the global level. As a result, the ‘guidelines’ and ‘frameworks’ end up having the same status as New Year Resolutions, such as quitting smoking or losing weight. Most of them are just not kept.

In the paper which I was asked to write for the G8 Research Group in preparation of the Aquila Summit, I have argued that the Good Samaritan approach, which relies exclusively on benevolent or philanthropic CEOs to implement global corporate social responsibility, very quickly meets its limits. Good Samaritans, like Philosopher Kings are few and far between. The financial excesses of 2008 which led to the current global crisis confirm the proposition that for every philanthropist there are many more cheaters who don’t play by the rules.  More importantly, the absence of global rules makes the very concept of cheating too vague to be applicable, since it is quite possible to be outrageously irresponsible without breaking any laws, whatsoever. It follows then that, in our view, a Global Standard, which is an excellent idea to begin with, can only be meaningful if enforceable by some form of global law.
How can this happen in a Westphalian World, designed around national sovereignty ? This is a tricky question and, as a former OECD ambassador, I am well aware of its complexity. However there are at least three plausible solutions which should be explored:

(1) Create a new IGO with direct authority on private actors. One model could be the UN Security Council. The idea of creating a Security Council for the Economy, for the Environment or for Health, among others has already aroused some interest. It would mean that the rule making, once approved by the member states could then be implemented with sanctions for non- compliance. A second model could be the International Criminal Court, which has the authority to prosecute individuals without the permission of national governments. An equivalent International Economic Court could be envisioned with powers to impose penalties on offending economic actors.

(2) Endow one or more existing IGOs with direct authority over private sector agents, in order to enforce the agreed upon Global Standard. If the first solution is too cumbersome, existing IGOs could be given the same authority. This could be done by treaty or agreement allowing the IGOs to take direct measures against offending private sector agents based in the signatory states.  The candidate IGOs which could be entrusted with that task could be the IMF, the OECD and the WTO or some combination of all three.

(3) Simultaneously enact identical corporate social responsibility legislation in all signatory countries, fully enforceable by national states. This proposal is the least complicated to implement and is advocated by the John Bunzl among other in the Simultaneous Policy Movement. Each sovereign country would enact identical laws, because subtle differences in wording could be exploited by cunning lawyers to create loopholes. The effectiveness of this  approach will also depend on its inclusiveness. If some major players are absent then it will obviously fail.

We have become One Interdependent World which obviously requires global standards, to be effectively managed. But without appropriate enforcement mechanisms these standards are unlikely to go beyond the status of wish lists.

Looking Beyond the G8

Posted by 180396 Jul 23, 2009

- by Guy Ryder, General Secretary, International Trade Union Confederation


As John Evans commented last week, the G8 Finance Minsters’ “Lecce Framework” for a “Global Standard of Common Principles of Propriety, Integrity and Transparency of International Economic and Financial Activity” provides a welcome focus on intergovernmental regulation via instruments that govern private sector conduct. We too believe it vital that the OECD Guidelines for Multinational Enterprises should therefore be comprehensively incorporated into the Framework, rather than merely referenced as at the moment.


Looking beyond the G8, the G20 is to hold its next Summit in Pittsburgh in September. The “Charter for Sustainable Economic Activity”, being prepared by a G20 Task Force and due to be discussed at Pittsburgh, needs to be comprehensive in scope and incorporate development, environmental and social instruments, including most importantly the “decent work” agenda and the relevant labour standards of the International Labour Organisation (ILO).


We would emphasise the particular importance of labour and social standards in providing overarching principles to prevent recurrence of the current crisis. The Global Charter could help pave the way for stronger, fairer and cleaner global economic growth but it must go beyond economic and trade issues if it is to deliver on that potential. 


Increased financial regulation is essential but it is not enough on its own - the political message of the London G20 Summit was that financial regulation PLUS employment creation is the new name of the game. The Global Jobs Pact negotiated by the ILO in Geneva in June was a promising step in the right direction and governments need to ensure that there is no return to the ‘business as usual’ approach that brought about this crisis. 


There is need for a new model of economic development, one that rebalances the economy between the financial and the real, between labour and capital; and between industrialised and developing countries.


This requires that the G20 in Pittsburgh should press ahead with global governance reforms and support a paradigm shift in the model of economic growth that puts people first.  Hence it is essential that decent work elements concerning employment, labour standards, social protection and social dialogue receive strong support from governments in the context of the G20 Charter discussions.  That way, the Global Standard can provide the basis for a broadly-supported and comprehensive response to the multiple governance failures that brought about the current crisis.



John Evans, General Secretary TUAC (Trade Union Advisory Committee to the OECD)


The Report of the Finance Ministers’ Deputies to the G8 Finance Ministers meeting, held in Lecce in June 2009, called for “a rethinking of the foundations of the global economic and financial system” in the light of the “worst crisis since the Great Depression”. Given the appalling human cost of the crisis - a probable 60 million more people unemployed globally and an extra 230 million pushed into extreme poverty - trade unions can only concur.


Beyond the re-regulation and more effective supervision of financial markets and institutions, such rethinking must also encompass the rules and oversight of the market system more generally. As a result trade unions are closely following the development of the G20 and G8 initiatives aimed at preventing excesses of the market and ensuring more balanced economic development.


The “Charter for Sustainable Economic Activity”, being prepared by a G20 Task Force and due to be discussed at the Pittsburgh G20 Summit in September, needs to be comprehensive in scope and incorporate economic, financial, development, environmental and social instruments, including most importantly the “decent work” agenda and the relevant labour standards of the International Labour Organisation (ILO).


The G8 Finance Minsters’ “Lecce Framework” for a “Global Standard of Common Principles of Propriety, Integrity and Transparency of International Economic and Financial Activity”, which appears to be designed to be one chapter of the Charter, brings together international instruments that govern private sector conduct. The Framework focuses on corporate governance, market integrity, financial regulation and supervision, tax cooperation, and transparency of macroeconomic policy and data. While these elements are necessary, they are not sufficient. Trade unions consider it essential that the Lecce Framework, in view of its focus on the private sector, incorporate the ESG (Environment, Social and Governance) standards on which private sector conduct must be based, if we are to achieve a shift to a new paradigm of economic development. The OECD Guidelines for Multinational Enterprises should therefore be comprehensively incorporated into the Framework, alongside other relevant OECD instruments – at the moment they are merely referenced in the Deputies’ report for Lecce.


These instruments have the potential to send a strong political message on the political priority given to the social and labour dimension of governance and development and provide a sustainable framework within which to strengthen inter-institutional cooperation and overall policy coherence. However, their actual impact will depend on their effective implementation, including the strengthening of existing instruments (the building blocks), achieving buy-in from governments and the adoption of a rigorous monitoring mechanism.

by Alberto Mazzoni - Professor of Commercial Law, Catholic University, Milan


The “Lecce Framework” of June 13, 2009 has once more confirmed the common intention to overcome the regulatory deficit showed by the actual financial crisis by way of setting or reinforcing common principles and standards on conduct of international business and finance. This intention must be supported by new ideas and proposals but must also build on existing initiatives, since a number of international standards and standard-setting bodies do already exist, and shall mainly focus on five sectors: a) corporate governance, b) market integrity, c) financial regulation and supervision, d) tax cooperation, and e) transparency of macroeconomic policy and data.


The general approach of reinforcing governance by starting from the recognition of a wider and more influential role of soft law is to be shared. However, there are a number of issues that need to be carefully evaluated, since the real question seems to be what kind of governance we are ultimately aiming at.


In the first place, it is well-known that the reason why the Financial Stability Forum (FSF) – now transformed into the Financial Stability Board (FSB) – was created was exactly to reinforce international standards and coordinate standard-setting bodies under the same umbrella, so as to have a consistent implementation system. Indeed, the FSF selected a list of existing standards which were thought to be of key importance for the prevention of international crises, promoted their implementation and mechanisms for review, and also required the IMF and the World Bank to sit together in a joint exercise to assess whether States would adequately consider these as precondition for development and stability. In short: we had already attempted to go the way we are now re-advocating, but the attempt has proven to be unsatisfactory, or at least not sufficient.


In the second place, the five selected sectors of intervention all require different tools and governance mechanisms. They indeed touch upon very diversified matters and require involvement of different actors. For each of them a distinct analysis of what governance should mean may be required. Anti-money laundering schemes, for instance, might require a combination of soft and hard law, cooperation among tax authorities but also banks and supervisory authorities. On a quite different level, corporate governance would involve analysis of companies structures and the interaction between corporate law and the law of the market, involving not only different authorities but also different economic and legal approaches.


Finally, macroeconomic data and objectives do inevitably share a common ground with some aspects of financial regulation, but we should never forget that macroeconomic policies of States require to be coordinated under different parameters than regulation of behaviour of private actors. In these contexts, the role of international organizations such as the IMF and the World Bank may have to be more political and more conscious of the need of global cooperation among States than that of a mere warden or custodian of the respect of international standards.


The main purpose of these brief and heterogeneous comments is to stress that in fact, behind the label of “international standards”, “regulation” and even “governance”, lay a number of articulated alternatives that need to be carefully weighed. What I am saying is that it is not the mechanism as such which has to be discussed – after all, the mechanism or the panoply of mechanism as such has been in place since long -, but rather the oil that we intend to pour into such mechanism.


For this, I would spend a few considerations on what “soft law” exactly is: standards are not simply “non-binding” instruments. They should be the result of a bottom-up formation of rules, made out of general agreement among all relevant actors. They should be so generally shared that their force reside in their inherent capability to persuade rather than to be imposed. Assuming that this quick definition of the essence of soft law is shared, it implies that standards can only work if they are perceived by all relevant stakeholders as their-own, and as representing a common set of values that deserve to be shared.


This is not an easy task in such a complex world as the one we live in. However, a full involvement of certain communities that may be effective conscience builders at the international level may lead to results easier to accept. This might mean to start reconsidering a larger involvement of international organizations and a diversification of tasks.


For instance, there are international organizations or bodies having as their main scope the unification of law. These can produce international conventions but also model laws and principles. They already have strong partnerships with civil society, although their products are political in essence and pass through the Cabinets of States. Unquestionably, these institutions should be directly and intensely involved in the process of setting standards.


In parallel, judges, whether in national courts or in international contexts, should increasingly inject in their interpretation of the rules the awareness of the legal importance of commonly accepted legal standards.  The law has (and must resume full awareness of having) ethical foundations. The common standards are, in substance, a conscious compilation of a number of ethical foundations of the law.  As history tells us, judge-made law is often a better promoter of the socialization of ethical rules than the legislative attempt to crystallize them in technical rules.


Finally, a number of organizations, including the OECD, the IMF and the World Bank, provide technical assistance to States: this activity could and should be a powerful vehicle for the spreading of common principles and their absorption and appropriation by each addressee State, if only they could be better inserted in a consistent frame and gain a better reputation.


Indeed, the Lecce Framework declares to lay on three focal concepts: property, integrity and transparency. Each of these is a prism containing a plurality of meanings. A way to overcome the difficulties of the past could be to start asking what we exactly mean with each of these, what we mean to protect, how people could believe these are relevant to our living together, whereafter the task of shaping common standards and ultimately of identifying by whom they should be shaped in the different areas would be greatly clarified and facilitated in implementation.





Towards a Global Standard

Posted by 19218 Jul 16, 2009

Paul Hohnen is an Associate Fellow of the Royal Institute for International Affairs (Chatham House)


The attention which the 2009 G8 Summit gave to a Global Standard is to be welcomed.


First, because it is and will always remain the final responsibility of government to shape standards, whether legally binding or voluntary. Second, because the process offers an opportunity to review existing principles and standards and to identify how well these are implemented. Thirdly, to be effective, any new standards need to be legitimate and practical. This will require a high level of consultation with stakeholders, offering opportunities promote partnerships and learning.


Government responsibility:  In the last two decades, governments have largely left standards making in relation to responsible business conduct at the global level to the private and civil society sectors. A notable exception was the OECD Guidelines for Multinational Enterprises (MNEs), which were developed by OECD governments jointly with representatives of the business community and of employee organizations and enjoy a level of NGO support. The Guidelines have a number of characteristics that make them attractive. These include the fact that they: were specifically crafted to provide guidance and recommendations  on what constitutes good business practice (covering issues such as disclosure, employment and industrial relations, environment, consumer interests, and combating bribery); have global application (they have also been endorsed by a number of non-OECD countries and are used by a wide variety of companies in developing their own approach to sustainable development and corporate social responsibility);  and have a mediation mechanism.


There are now hundreds of general or sector specific standards offering guidance on what it is to be a good company. Some of these help companies understand what to do, and others how to do it. Many specifically reference or embrace government-agreed principles; others don’t.  Most represent an attempt to fill a gap in guidance on what is expected of business.  While healthy in terms of public participation, this development represents a challenge for governments. For example, private standards might redefine agreed government policy or displace government-agreed instruments. In still other cases, sensible standards might simply not be applied.


If governments want agreed international principles on responsible business practices to be widely respected, they need to go further. They need to build greater awareness of existing standards and to make improvements needed to ensure increased uptake. Government participation and leadership in this process has often been a missing element in global standards-making, and its return is timely.


Build on Existing Foundations: Many organizations have the sense that there are already too many standards in the market place. Others aren’t aware of the standards that already exist, including governmental ones. As a first step, the Global Standard process needs to define:

• what its specific goals are
• what organizations and/or sectors it will apply to
• what standards already exist and their strengths and weaknesses
• how a new Standard would complement existing standards.


Experience with privately-developed standards over the last decades suggests that standards that are too broadly defined do not meet the needs of modern organizations, which may need recognition in the form of assurance or certification.  Experience also suggests that governmentally-developed principles and standards, including OECD and ILO guidance, have not been as fully promoted as they could be.  Indeed, the G8 has committed to promoting such instruments as a high priority. (For a more detailed discussion of this point, see:
Above all, experience shows that unless governments take a close and consistent interest in standards implementation, implementation is patchy. This has been the reason that some organizations have called for legally binding rules.


The Importance of Stakeholders:  Partnerships of business and non-profit organizations – sometimes with government involvement - have developed a wide range of standards. These include: the general guidance being developed by ISO on what it means for an organization to be ‘socially responsible’; the UN Global Compact’s ten principles, and the Global Reporting Initiative’s (GRI) sustainability reporting framework.  Organizations such as these have immense experience in the development. With the proposed expanded role of governments in the standards-making space, it will be crucial to engage the business and other organizations that will be using the Standard to ensure that it is practical, measurable, and implementation beneficial.


The Lecce Framework opens a Pandora’s box of questions and challenges. But in doing so, it offers the opportunity for a new level of global discussion on how best to harness the powers of the market to achieve a more sustainable and equitable globalization.


by Giovanna De Minico, Professor of Public Law, University of Naples “Federico II”, ordinary member of Conseil Superior of the Communications.



I would like to start by saying that though I share the basic spirit of this initiative and its twelve principles, I would moderate an excess of enthusiasm because the successful outcome of the regulatory action depends on its successive implementation. In fact, such generic principles do not go beyond the mere manifestation of intentions, therefore their ability to restore the confidence of the savers in the Financial market will be conditioned by how the political rule-maker will convert them into punctual rules of conduct for the Financial industry, if our Europe, which is not a State, is able to identify a unitary decisional author.

Therefore, the challenge is only at the start.

Let me raise two criticisms against the 12 principles: the first concerning the method, the second the substance.

The first: that posing an unmodifiable common framework by member States has not been attained because of the nature of the principles: soft, not binding rules, which enable to steer the future behaviour of political rule-makers. The latter can comply with them or not, but it must be clear that they will not be forced to implement them. Once again Europe seems unable to go beyond the mere manifestation of intent: the European financial acts offer a good example of ignored moral suasion. 

The second: there are two criticisms, which are not directed towards the twelve principles but rather towards the future legislator. 

The first concerns the space to be granted to the self-regulating different systems of financial markets, which today are too ample and lack a binding legal framework; this has allowed the private interest governments to contend for the operators through light rules and corporative supervision. Contrarily to some American literature, I do not believe that the plurality of Self Regulatory Organizations (SROs) will be ex se able to promote a regulatory race oriented to the top while lacking minimum quality standards, which the SRO regimes must satisfy. These rules should anticipate self-regulation in order to ensure that its exit is compatible with the common good. The 12 principles do not state this; consequently this must be stated by an unmodifiable binding source by the self-regulation of SROs. A common design should also be required of each SRO in such way as to ensure a diffused and balanced participation of the different regulated classes in its rule-making because asymmetrically composed boards have already produced unilaterally oriented rules.

My last objection concerns consumer protection. The only attention to this theme in the 12 principles is the short reference to information transparency, but nothing is said about the presence of the State.  

On my opinion, the State should assist consumers by promoting an updated, intelligible, clear and reliable information flow, thereby allowing the consumers to choose the investment product. Public intervention is not aimed at replacing investors in the assessment of a given investment proposal, assuming that this judgment should remain their exclusive responsibility in line with the “attention calling” method.

The final step of enforcement should provide adequate sanctions for the infringement of the rules; these sanctions should be designed by a single law-maker, observing the parameters of assurance, inflexibility and timeliness of the sanction. The costs generated by the violation of rules should in all cases be higher than the costs of compliance. Only if this equation is applied by the law-maker, the effectiveness of the rule would be enhanced. While concerning the judiciary remedies, the class action should be available in order to offer European collective protection, which has been almost ignored by the member States.

Special attention should be paid when – as in the EU plan - the system multiplies the levels of supervision rather than streamlining them. A sanction must be provided for at each level – i.e. State and supranational – where controls or supervisory duties are not carried out.  If not, the proliferation of agencies would go hand in hand with a watered-down responsibility, or even with the impossibility of laying on anyone the responsibility for a conclusive decision. This wide concept of enforcement would also call for a cross-border single reference figure for Aquilian liability, to which supervisory Authorities should be subjected in the event of non-fulfilment of their institutional tasks. While the European experience has provided for the accountability of the Authorities only in the event of torts committed with malice or gross negligence.

Since there is still a long way to go, I would tend to be less optimistic and more pro-active towards legislators in the future, if  the world Leaders' intent to restore consumer confidence and market effectiveness is to be considered real.

Roger McCormick - Director, Law and Financial Markets Project, London School of Economics



            Prior to the Crisis, London’s success (and the stability of the UK financial system) was built upon the relationship between market participants, those who regulate them, and those responsible for the laws that apply to market transactions. This will remain the case. Although any successful marketplace needs more than just a reliable legal system, if it does not have that as a foundation, it will not last for very long. Bad laws, which may threaten the reliability of bargains entered into in good faith or expose honest businesses to unacceptable hazards, cause risks to arise which, ultimately, can drive markets away. Although the financial markets will tolerate a degree of legal risk, it is rarely welcomed and generally only accepted, grudgingly, if it is unavoidable. The need for vigilance in this area has been intensified as new, fundamentally important, laws have been enacted, in some cases as a matter of urgency, in response to the Crisis.


            The regulatory regime in the UK is complex and its “architecture” is currently a matter of intense political debate. Whatever the architecture, regulated financial institutions are not only governed by laws (as we all are) -- they are also bound by ‘rules’ (some of which are expressed as very broad principles), told what to do by ‘directions’ and ‘requirements’, expected to be steered by ‘guidance’, protected by ‘safe harbours’ (but potentially damned by other ‘evidential provisions’), and required to comply with an ever-increasing number of codes of conduct. And that is just in the UK. The appropriate multiplier can be applied, depending on the number of jurisdictions in which a regulated business has activities.


Is there now a risk that, following the Crisis, we will over-regulate – in an attempt to react to every conceivable link in the causation chain that led to the Crisis? This risk may be exacerbated (in the UK) by the desire of the FSA to correct the impression that it had an unduly “light touch” approach to regulation in the past – an impression that some feel owed more to a desire to promote London as a financial centre than to the substance of how it actually fulfilled its role. It is crucially important to proceed carefully with the reform agenda, linking change, wherever possible, to significant Crisis causes rather than mere “sine qua non” links in the causation chain.


It is also important that zeal for change does not cause us to lose sight of how important legal risk is for the financial markets (and how it may be triggered inadvertently by poorly thought out new laws or regulations). It is indicative of the importance of legal risk that in the “War Game” exercise carried out by the UK regulatory authorities in 2004, to simulate risks to the financial system, the trigger event in the exercise was an imaginary unfavourable decision of the European Court of Justice: a classic example of legal risk. The simulation assumed that the ruling of the court “created a behind-the-scenes run on banks that were heavily exposed to the property sector” according to the Financial Times report of the exercise.



The events that led up to the Crisis and the various responses of government and others in its early phases have had clearly had an impact on legal risk. The Crisis has, for example, resulted in new legislation (the Banking Act 2009), giving the authorities the right to exercise so-called “stabilisation powers”  that can result in the effective confiscation of either shares in banks or the assets of the banks themselves. This law also gave rise to important technical concerns about, for example, the impact on netting arrangements of using the stabilization powers to transfer some (but not all) of a bank’s assets to another institution..




The Crisis has raised concerns about the effectiveness of governance regimes in banks and other financial institutions and, especially, the effectiveness of non-executive directors. It has, generally, triggered widespread demands for more effective regulation in a great many areas, including, possibly, “direct product regulation”. On a more technical level, it has demonstrated the inadequacy of the general corporate insolvency regime for dealing with the complex issues that arise when a high profile international financial institution gets into financial difficulties and has raised some issues of particular complexity in the context of the insolvency of investment banks. The combined effect of the changes in the bank insolvency regime in the UK, the likely changes in governance rules and the fact that (for the time being at least) so many major banks have large public sector shareholders goes to the heart of what kind of legal animal a bank actually is.




Bank insolvencies triggered by the Crisis have also caused market participants to re-think some of the standard provisions in documentation that had tended to be based on the assumption that the collapse of a bank as well known as, say, Lehman Brothers was, in practice, “unthinkable”. Documentary legal risk is still with us.



The various “Ponzi” schemes and other frauds exposed by the Crisis have had their own legal risk consequences and spawned a great deal of related lawsuits. The Crisis has tended to expose a number of “Ponzi” frauds because the downturn has forced many investors to seek the return of capital invested rather than simply enjoy the above-average “income”. Indeed it is thought that the publicity generated by Madoff may have caused other investors to ask questions leading to the exposure of comparable frauds. The scandal is also thought to have inflicted reputational damage on the hedge fund industry, which shrank by 1,200 funds to just over 9,050 funds between mid-2008 and mid-2009.




Litigators are by nature imaginative. A legal action has, for example, been brought recently by various “green groups” against the UK Treasury to require it to use the government shareholding in RBS to force the bank to give financial support only to projects that satisfied certain environmental and human rights standards.





Whenever significant amounts of money are lost, disputes are likely to follow if the making of a claim (preferably against a deep-pocket target) has the remotest chance of resulting in some recovery – even after an out-of-court settlement. The Crisis is no exception to this general rule of behaviour. As with the Madoff affair, criminal charges also tend to be on the agenda and heightened regulatory scrutiny is inevitable.




At the time of writing the tsunami of litigation, criminal proceedings and regulatory action shows no signs of abating. Not only has the Crisis made certain kinds of claim virtually inevitable, it has also worsened the reputation of banks (which was not very high in the first place) to the point where they are “fair game” for any reasonably inventive litigant who can find an ambitious lawyer prepared to take a risk on a contingency fee arrangement.




There have been many “responses” to the Crisis from regulators, governments, supra-national authorities and others. Everyone has had a chance to “have their say” and few have resisted the opportunity. In some cases, the responses have tended to reflect a pre-existing political agenda. In the UK, the very nature of the regulatory system has become a party political issue. The responses reflect the passions that the Crisis has aroused. This is hardly surprising, at least at the political level. However, the contribution of lawyers to finding the best road forward needs to be in the best traditions of the profession: analytical, objective and dispassionate. That contribution should also, perhaps, be a little more forthcoming than has been the case to date?

Prof. Valerio De Luca, Visiting Fellow, London School of Economics, Department of Law.

President, International Academy for Economic and Social Development, Rome-Luxemburg.



The current global financial crisis, actually determined by financial engineering innovation and by deregulation policies, is collectively believed to have caused the “Wall Street” slump.

  In this way, the free-market paradigm collapsed from the inside – meaning by free-market a mechanism able to self-regulate and generate well-being and development for all. The practice of economics has reflected this ideological focus and has sought to remove values and morality from economic discussions rather than seeking to integrate these concerns into creating a more effective and just financial system. This world view has created a society in which short-term economic and personal gains are made at the expense of others and have the effect of creating an individualism lacking recognition of the shared rights and responsibilities necessary to create a society respecting the dignity of all people.

  How do we, living in a world at risk caught in an age of global financial innovation, respond to the differing needs of individuals and institutions ?

How should the financial sector respond not only to the current crisis but to the wider needs of the people it serves ?  Does business has a duty to society that goes beyond the creation of profits?

And finally does open market capitalism remain our best hope for creating wealth that benefits all aspects of society ? These questions strike at the root of what we “belived”, as an ideology, for at least a quarter of a century under the name of the “Washington Consensus”.     

  The capitalist system is at its heart about trust. There has been a massive breakdown of trust: trust in banks, trust in business, trust in financial system, trust in politicians, trust in regulators, trust in media. If we are to restore trust and confidence in the markets, we must therefore address what is at its roots a moral question. The new paradigm of “capitalism needs to integrate values with value”.

  This “surplus” goes well beyond the simple compliance to the laws or to the codes of conduct. As a matter of fact, without internal forms of solidarity and mutual trust, the market cannot completely fulfil its proper economic function. Market must not become the place where the strong subdue the weak and, therefore, the logic of profit must be directed towards the pursuit of the common good, for which the political community in particular must take responsibility. The commitments made at the G20 London Summit last  and at the G8 Aquila Summit call for the need of a new paradigm based on the redirection of the national and global financial and economic systems towards the ethical principles of justice, solidarity and common good. In particular, the challenge launched by the Aquila G8 Summit will be whether world leaders can construct a shared vision of a global legal standard that preserve the dynamism of market forces while taming their excesses.

  The “Aquila Consensus” toward a “Global Legal Standard” should be based on a “pluralism without relativism” and on the “min-max rule” : an agreement on a “minimum” fixed core principles  plus a “maximum” degree of openness to all the different cultures and values  (first of all , the asian values) to set  an inclusively and collaboratively  discussion both on the common interest (security, climate, poverty human rights, etc.) - and the “The Twelve Tables” on Propriety, Integrity and Trasparency.

  This cultural challenge is common to the third encyclical of Pope Benedict XVI – “Caritas in Veritate” that highlights a reconsideration of values, principles and rules for a new model of economic and social development, careful to the requirements of solidarity, respectful of human dignity and at the service of an integral, creative and sensible freedom. Quoting the Pope “Globalization is a multifaceted and complex phenomenon which must be grasped in the diversity and unity of all its different dimensions, including the theological dimension. In this way it will be possible to experience and to steer the globalization of humanity in relational terms, in terms of communion and the sharing of goods.” Within this context, the encyclical provides important indications to lead to a third way of a “human-faced” capitalism that places man at the centre in his personal and community component.

  Therefore, a “new paradigm of capitalism” is outlined, based on the primacy of the human person and on community principles, that actively involve all the sectors of the civil society in the implementation of objectives based on shared values and on the sense of the common good.

  A new start from primary community links to create a new alliance with the religious element of public life. This must be the common objective onto which building the sound base of a new model of development, well-founded and inclusive of the global financial system’s reform, to act as grounds for a human and integral development of people and to head towards a common future open to hope.

  To conclude with the Pope’s warning : “Development will never be fully guaranteed through automatic or impersonal forces, whether they derive from the market or from international politics. Development is impossible without upright men and women, without financiers and politicians whose consciences are finely attuned to the requirements of the common good. Both professional competence and moral consistency are necessary”.


by Vito Tanzi, Former Director, Fiscal Affairs Department, International Monetary Fund           


There was a time when countries operated much like isolated islands, with limited contacts among them. At that time, each country could establish and follow its own rules with little concern about the impact that these rules might have on others. There was no need to coordinate the  rules because cross-countries spillovers were not important. This is clearly no longer the world we now live in. Spillovers have become common and often highly significant, as was shown by the recent financial crisis, that was a disastrous example of these international repercussions.    



Some observers might still believe that an "invisible hand" operates globally, so that there is no need for any international cooperation: let the markets operate freely, without any coordinated rules, and the world welfare will be maximized. In spite of the many benefits that globalization has brought to the world, it has produced a growing number of opportunities, especially for enterprises operating globally, to take unfair advantage of differences that exist in rules, regulations, and other characteristics across countries.         



It would be naïf,  in  today’s world,  to expect that countries could be made to follow identical and precise rules in different markets, such as the financial market, the labor market, and other markets. It would also be naïve to expect that identical rules or laws could apply to the governance of corporations, tax systems, and other areas in different countries. However, it should be possible to agree on a broad set of principles that, like the ten commandments, could give some useful guidance to the activities and the actions of governments and to the various global economic operators. These principles would have the character of "soft laws". If followed, they might, over the long run, help promote a process of amalgamation of rules , regulations, and formal laws to achieve better coordination of economic activities among countries. 



Within the Global Standard 12-point proposals (followed up in the "Lecce Framework"), there is that of "tax coordination". The text states that: "Tax evasion and avoidance are harmful to society as a whole, and companies and all business entities…should fulfill their fiscal duties…". It would be difficult to disagree with this principle. Two points need to be made with respect to it.

The first is that the statement does not call for tax harmonization but for tax coordination among countries. Calling for tax harmonization would have been unrealistic. Thus, countries will continue to have the tax systems that they wish, provided that these systems do not specifically include features aimed at shifting tax burdens on other countries; or attracting unfairly to them the tax bases of other countries, as now happens with unfair tax competition. 



The second point concerns the link between the tax principle and some of the other principles contained in the " Lecce Framework". Let us consider briefly some of these links. The link between tax evasion and bribery, especially in international business transactions, is rather obvious. It is often easy for a rich corporation to bribe a poorly paid employee of a tax administration, especially in poor countries. This has been a common problem and in some countries the companies paying bribes could even claim the bribe as a business expense against their taxable income. The payment of bribes, as well as the acceptance of bribes, should definitely be made criminal offenses by all countries. This would make the international playing field more even for multinational corporations. The link with money laundering is also obvious. The money to be laundered has, in most cases, avoided paying taxes. The link of tax evasion with bank secrecy and with the lack of timely and accurate information, regarding the activities of foreign companies and individual investors, is also rather obvious.   



Globalization has changed the character of tax evasion. In today’s world, tax evasion has become progressively more a global, rather than a predominantly domestic phenomenon. There are estimates that hundreds of billions of dollars are evaded every years though global illegal operations. Some believe that these global, tax- avoiding operations may even have contributed to the financial crisis. A global standard that, over time, promoted better and better coordinated rules would reduce this problem.

The Netherlands welcomes the Lecce Framework and would like to congratulate the Italian government with this very timely initiative. With the current financial and economic crisis the world finds itself at the crossroads.


On the one hand the globalisation of markets is an enormous force for worldwide wealth creation.


On the other hand this market driven process is insufficiently balanced by global governance.


Therefore it fails to meet basic needs of certainty, equity and sustainability. As a consequence public support for open markets for trade and investment could fade away. The Lecce Framework recognizes that in today’s world there is no alternative to globalisation as a motor for growth and employment worldwide. It also considers that the interests of individual market players can coincide with those of the world community. This would demand that all actors live up to fundamental norms of propriety, integrity and transparency in economic relations. The Netherlands fully endorses the philosophy behind the Lecce Framework and is ready to co-operate with the Italian government to ensure its early implementation. This major contribution to turn the globalisation process into a win-win development deserves global support!


René Van Hell (Deputy Director, Directorate General for Foreign Economic Relations, Ministry of Economic Affairs)

At the G8 Summit in L’Aquila world leaders have reaffirmed the need for a broad agreement on the objectives of the Global Standard, including through the G20. This is a success! The OECD is committed to working to make further progress.


The relevance of the Global Standard has also been validated, over the past few days, by the wide range of contributors to this blog and your inputs have contributed to a lively discussion around the issues of propriety, integrity and transparency.


Thanks to all of you for your welcoming words, your timely ideas and suggestions.


The interest shown by the MBA community for the Global Standard is a very positive signal. The involvement of tomorrow’s managers in this discussion gives us hope for the future. It reinforces my conviction that tomorrow’s business practices can indeed be based on a new set of foundations, including enhanced accountability, transparency and responsibility.  I appreciate your sharing with us your “MBA oath”.


The need to build upon and complement existing instruments such as the OECD Corporate Governance Principles, the OECD Guidelines for Multinational Enterprises and the Basel Committee Principles is also acknowledged. And of course, I have been pleased to read these comments because many of these are OECD living instruments that are bound to change and adapt as circumstances require. In this regard, I particularly welcome the important suggestions of IFAD’s President Mr. Kanayo Nwanze who reminds us of the potentially significant gains for poor countries from a well designed Global Standard.


At the same time, as Professor Schneider rightly points out, any efforts to create a Global Standard or a Lecce Framework should address the question of its added value. So what is the “plus” of the Global Standard that we would like to achieve?


Two broad themes emerge from your inputs:

  • One is a strong reminder that the well-being of businesses and the market conditions required to support their prosperity are in the interest of all stakeholders and of society as a whole.
  • The other is the call for a Global Standard that, while helping business players to remain connected world-wide, also reminds them that there are responsibilities and ethical rules to be met. Professors Khurana and Nohria summarise this well: “To put our global economic system on a path towards sustainable long term growth, business leaders must begin to embrace a way of looking at their role that goes beyond their narrow responsibility to the shareholders and includes a broader commitment to their duty as institutional custodians.”


Allow me a few words about the 12 Principles developed by the working group as input for these discussions. They are not written in stone. Rather, they constitute a first step towards a Global Standard, grounded in the notions of propriety, integrity and transparency that will help prevent a recurrence of future crises. Your comments are already providing food for thought and I encourage your continued feedback.


As Senator Gary Hart, Enrico Letta of the Italian Parliament and Professor Giorgio Napolitano have underscored, we face many common challenges. The movement towards a Global Standard provides a basis for common solutions, agreed openly, inclusively and collaboratively. The exchange so far is showing that this blog can indeed complement well the OECD’s efforts to work as a ‘hub for dialogue on global issues’.


I am looking forward to reading more of your comments in the coming days.


Thank you very much!

Even as we continue to perpetuate our respective national identities as Italians, Germans, English, or Americans, we must now take account of globalization in all its forms and the degree to which eroding national boundaries increase our identities as citizens of one community on planet Earth.  The movement toward Global Standards, in business, in politics, and in society, is both an acknowledgment of that common community and the recognition that we all share a responsibility to the global commons.  The 21st century is an age in which those things that unite us and that we share in common are now much greater than differences that have divided us for many centuries.  We have a common interest in security, in climate, in conservation of finite resources, in human rights, and most of all in the future of our children.  Our common humanity can only be pursued if we subscribed to common standards of propriety, transparency, and most of all integrity in all that we do.  We owe this much to ourselves and we owe much more to future generations.


Gary Hart

University of Colorado

U.S. Senator (Ret.)

By Kanayo Nwanze, President of the International Fund for Agricultural Development (IFAD)


The global food security crisis of 2008 led to a new and interesting development wherein land poor countries began to acquire large tracts of land in land-rich countries to invest in food production for their domestic markets. This phenomenon has often been labelled as “land grabs” and a number of commentators have pointed to the danger such investment may pose to poor farmers in developing countries.[1] As this phenomenon is likely to continue in the coming years – in part triggered by growing population pressures and climate change -- it is important that appropriate international guidelines or global standards are developed to govern such investments.


I believe that properly structured such land deals can lead to a potential win-win situation for all concerned. Properly handled such large foreign investments have the potential of supporting broader agricultural development in African countries by providing resources for investments in better roads, irrigation, technology and training. If done the right way, land deals can improve the lives of poor rural women and men. They can create jobs, infrastructure, and market access and help poor rural people lift themselves out of poverty.


Global standards to guide such investments should include the following elements:


o    The voices of poor rural people must be heard – including the most vulnerable, whose land tenure is often insecure.  The principle of free, prior and informed consent should be a cornerstone of government policy.


o    Governments in the land-rich countries need to provide a clear legal and regulatory framework in which foreign investors operate, and through which land deals can be monitored.


o    Innovative forms of collaboration between the large commercial farms and smallholder farmers should be encouraged. Foreign investors can provide investments for infrastructure, including roads and irrigation, the provision of fertilisers, seeds and other inputs, to enable the farmers to increase their production sharply.  In return, in a medium-term arrangement, the farmers would provide assured supplies on agreed market-related prices. 


IFAD is supporting a pilot initiative along these lines in Ghana.  Its lessons could serve as a model, which could be replicated and up-scaled in other countries


[1] IFAD and the FAO supported an important study on this phenomenon prepared by the International Institute for Environment and Development entitled "Land grab or development opportunity?
Agricultural investment and international land deals in Africa" (
It has also supported the FAO-led Voluntary Guidelines for Responsible Governance of Land and Other Natural Resources.


Hard rules vs. soft rules

Posted by 531298 Jul 9, 2009

Here, I want to very briefly draw out and expand on certain themes that may prove critical in pushing forward a more sustainable, egalitarian global economic framework. 

First, 'hard' rules will not necessarily lead to determined outcomes.  Unlike a force that may produce an effect in nature, rules do not by themselves lead somewhere, regardless of whether people follow them or not.  In other words, a rule has no prior determination or meaning outside of a regular practice of action, which itself is not governed by the rule but by unarticulated understandings and ritualized, often undetectable, practices.  'Hard' rules, like 'soft' rules, are prone to regulatory capture unless such rules can also take into account these informal mediations and implementations of the rules themselves.  In fact, beyond the fact that the interpretation of rules is always determined through practice and hence fluid, derogation from rules may be essential to the creativity and usefulness of any normative framework.  Thus, it is essential that the emphasis is not only placed on constructing 'better' rules, but more importantly, on addressing (and probably, adapting) the institutional settings, actors, and procedures that give life to these rules.

Second, the current strategies put forward by Western governments in the last year have largely operated on the assumption that the 'fundamentals' of the global order are sound, and that the economic challenges are the result of non-regulation and wishful, naive, or even willfully ignorant thinking.  Drawing upon our first theme, however, the issue should be recharacterized less about the need for regulation, and more about the type and character of regulation at play.  Moreover, by focusing on the lack of regulation/oversight, current reform efforts are unable to adequately contemplate the possibility that the economic deterioration was more systemic in character, and therefore, that any meaningful longer term alleviation of these challenges will require a thicker re-imagination of the nature and practices of business, the distinction between the public and private spheres, and so on.  Beneath the calls for 'sustainability', 'cosmopolitanism', and 'egalitarianism' resides the fact that the current lifestyles we enjoy and the global framework that supports them are simply irreconcilable with meaningful reforms.  This leaves us with much more difficult, but essential choices to make about who will be the winners and losers - in short, we should be as open as possible about the inevitable costs of any reform and come to terms with the limits of our intentions. 

Third, a body of experts might be crucial for developing an understanding of the systemic challenges at play in the current crisis, and provide an outside (though not disinterested, or necessarily objective) perspective and set of recommendations to more successfully take on the current challenges. 

John Haskell

PhD in Law Candidate, School of Oriental and African Studies (SOAS), University of London


Posted by 531185 Jul 8, 2009







We are facing the most serious economic crisis ever happened.


An event caused and fed by the uncontrolled explosion without any rules of a globalized financial industrialisation, who planned to create a worthless economy based on debts.


Consequently, the great financial bubble has hit the real economy and is still producing dreadful results on employment, with the risk of an accelerated social disintegration process.


The causes of the crisis are well known: the dependence on oil, daily burned on Earth, the deregulation pushed by financial markets, the explosive increase of debts and financial instruments, the reduction of family incomes with the following demandr of loans, the birth of a new class of super-managers, who have distorted the role of the market as a meeting point for savers (single or joint) and companies.  




The main cause that drove the financial crisis was “Hyper finance”: a system freedoom of movement to the Hedge Funds, letting a new type of investors transfer their own financial risk on the companies, burdering them of debts (private equity), a system that allows the unregulated financial market, composed of “derivatives” and options to influence the real economy, especially the raw materials prices, with crippling effects on food goods and in southern under developed countries of the World. Today, the fair value of the “derivatives”  now existing on the market is about 480 trillion dollars, more than ten times the WGDP (World Gross Domestic Product). It’s absolutely necessary to switch off the plug !





Regarding the Financial Markets, we must :



1.     Establish a supranational Authority for the regulation of financial markets  (controlling the “derivatives”, hedge funds, private equity, merchant bank, etc …)

2.     Close Tax Heavens.

3.     Limit the leverage of each dealer (not over than 10 times the value of their assets) and the maximum amount for each investor in respect of his own assets.

4.     Insert a cap for the incentives related to financial operations for top and middle managers and for all their subordinates. (for example up to the maximum amount of 10% of the personal year salary).

5.     Obligate the financial operators to fully inform the customers about their financial instruments (such as loans, funds, bonds, etc…)

6.     Revise the rules for granting credit to small and medium-size business companies and social cooperatives  (with a revision of “BASILEA 2”), introducing some instruments of guarantee for the public administration and their affiliated companies.




Regarding the Tax System, we must :



7.     Set up a new financial tax for Stock Exchange transactions regarding currencies and derivatives or similar, designating the amounts in favour of humanitarian objects such as the Millennium Goal.

8.     We must adjust the taxation between current account taxes and capital gain obligations ones (actual range of  27% - 12,50%), doubling the taxation on the commissions paid by customers in the case of a performance lower than 10% of the benchmark, and assigning the amount to support microcredit.

9.     Increase taxation on polluting and energy wasting goods, assigning the incomes to new investments on public transports.

10. Adopt a taxation system that rewards social responsible investments, both individual or collective (for example Retirement Funds).

11. Set up a fixed tax on rents (for example 20%), a bonus for weakest citizens with the right to a first house, assigning the incomes to a new patrimonial fund.

12. Introduce fiscal premiums for the enterprises being certified of Social Responsibility and  that maintain ratings for at least three years.



Regarding the Legality, we must :



13.       Lower the “usury rate”, comparing it with the BCE Prime Rate and with a specified spread, clearing up money transfers and imposing fiscal penalties on the use of  cash money and checks in order to hamper criminal business.

14.       Restore the obligation of legal persecution for the crime of balance falsification.

15.       Increase the development of commercial enterprises that use the confiscated assets of racket (organized crime) by reducing the necessary time of appropriation within 6 months and establishing public funds for this development.

16.       Limit the production and the exportation of weapons to the only countries that ensure peace in their influence area, which have an high rate of social internal cohesion and democracy, who protect freedom of religion and thought, who limit the possession of arms, who accept the supervision of the United Nations and who pay close attention to disarmament, nuclear energy, toxic gas and cluster bombs.



Regarding the Supportability, we must :



17. Entrust an Authority with the control of the price of raw materials for energy and food in order to ensure the stability of their value especially for non-financial operators.

18. Detail specific rules for manager bonuses with a maximum salary cap compared to the average workers’ retribution (for example not more than 15 times, including the stock options, which are to be bound some way).

19. Establish by law that essential resources (water, gas, electricity, networks and public transports) must be safe from financial speculation, giving to water its “original value as a natural resource accessible to everyone”

20. Support financial instruments steered towards an eco-sustainable consumption of the resources (for example loans for home restructuration in order to save energy), specifying by regulation what can be said as “ethical goods” and nominating an Authority for the Social Responsibility.



by Angel Cabrera (President, Thunderbird Global School of Management and Young Global Leader, 2005)


At the 2009 World Economic Forum Annual Meeting in Davos, the Forum of Young Global Leaders launched an initiative to introduce an oath for business leaders that would serve as a guide when facing difficult trade-offs and paradoxes. During the course of 2009 the YGL Oath Initiative has drafted a set of principles and has been testing the content and implementation with leaders from all sectors and regions of the world. As part of this process we are pleased to share the most recent version of the Global Business Oath (a YGL Initiative) with the G8 / OECD Global Standard Blog.


Global Business Oath



As a business leader I recognize that


-       The enterprise I lead must serve the greater good by bringing together people and resources to create value that no single individual can create alone,


-       My decisions can have far-reaching consequences that affect the wellbeing of individuals inside and outside my enterprise, today and tomorrow,


-       As I reconcile the interests of different constituencies, I will face choices that are not easy for me and others,




So I promise that



1.    I will manage my enterprise diligently and in good faith and will not let personal considerations and compensation supersede the long-term interest of my enterprise and society at large,


2.    I will understand and uphold, both in letter and spirit, the laws and contracts governing my own conduct and that of my enterprise,


3.    I will respect and protect the human rights and dignity of all people who are affected by my enterprise and will oppose all forms of discrimination and exploitation,


4.    I will respect and protect the right of future generations to enjoy a clean and resourceful planet,


5.    I will not engage in nor tolerate bribery or any other form of corruption,


6.    I will represent the performance and risks of my enterprise accurately and honestly to each of the constituencies that are affected by it,


7.    I will actively engage in efforts to finding solutions to critical social and environmental issues that are central to my enterprise, and


8.    I will invest in my own professional development as well as the development of other managers under my supervision



In exercising my professional duties according to these principles I recognize that my behavior must set an example of integrity and responsible conduct. 


This pledge I make freely and upon my honor.

The Need for a New Paradigm

Posted by 531370 Jul 8, 2009

Enrico Letta, Member of the Parliament, Rome



               The publication in the week of the L’Aquila Summit of the Twelve Principles on Propriety, Integrity and Transparency is a timely initiative.  These Principles are offered as a contribution to the discussion on the Global Standard carried out within the G8 and to the broader debate on the crisis’s diagnosis and therapy.




              To participate in the work of the Committee of Experts which has, together with the OECD, prepared these Principles has been a challenging exercise.  Through a lively debate, experts, academics and officials have discussed the roots of the financial crisis and the possible remedies to avoid its recurrence in the future.




              The crisis has its origin in dramatic shortfalls in the markets’ organisation and self-organisation, especially in the case of the credit’s industry.  These shortfalls result from deficiencies in risk management and prudential rules and more generally in the financial regulatory framework. Therefore, the immediate fixing of these problems is key for restoring confidence and avoidining their repetition in the future.  The G20 Summit in London has taken important decisions in many salient issues in this regard.  The tasking of the FSB and its continuing work remain of the outmost relevance.  Its expansion and strengthening must be welcomed.




              However, it is becoming more and more shared view the fact that the way in which business is conducted around the world needs something more than the fixing of the aforesaid regulations.  The crisis has shown how makets around the globe are exposed to issues of propriety, integrity and transparency.  It’s not the first time.  In the last ten years, a string of business fraud cases of unprecedented dimension has hit workers, investors and consumers frustrating their confidence in the market and on the role of the governments.




              Corruption, tax fraud and evasion, financial architectures and schemes built with the only purpose of circumventing the law, regulatory arbitrage and other forms of race to the bottom cannot be tolerated anymore.  They mine the trust in the market and in its capacity of producing wealth and prosperity.  For this reason, these Principles have been thought to help to change certain paradigms which governs business. 




              World’s Leaders, within the G8 and the G20, in embracing similar Principles will have the chance to give the “tune from the top”.  Propriety, integrity and transparency will be placed at the center of the international agenda at the highest possible level.




Mauro Bussani*



After the financial crisis, rating agencies have come under repeated criticism for a variety o reasons, including their poor responsiveness and delays in modifying ratings in view of market developments. The picture that has broken surface is one in which the rating agencies ended up compromising the quality of their activities in order to facilitate the selling of services, and snatch or defend market shares in a roaring environment – while conflicts of interest in the agencies’ relationships with their clients certainly aggravated the situation.


In the US, a regulatory framework for credit rating agencies’ activity has existed since 1975, reinforced by the Credit Rating Agency Reform Act of 2006. The latter Act aimed to foster increased transparency, accountability, and competition in the credit rating agency industry for the benefit of investors. It enhanced SEC’s regulatory authority over rating agencies in several areas, requiring the SEC: to establish a registration process for credit rating agencies; to impose disclosure and filing requirements on credit rating agencies seeking registration; to prohibit certain activities of registered credit rating agencies, to censure, deny, suspend or revoke the NRSRO registration. Although this regulatory framework has not prevented the agencies from ill-performing their role, in 2008 the European Commission followed the U.S. model through a proposal for a European regulation on credit rating agencies.

The point is that both the U.S. and European regulatory approaches content themselves with focusing on the lack of competition in the rating market, on the absence of transparency in rating processes, and on the conflicts of interest inherent in the rating process. Their implied assumption is that market discipline, in the form of fear of loss of reputation, does (or at least should) provide the right incentives for high-quality ratings. According to this school of thought – to which, to nobody’s surprise, credit rating agencies fully adhere –, investors and issuers can only accept reliable and serious agencies’ conduct in the long run. Once again the creed is that the market can always regulate itself.

Before and beyond the current contrary evidence, a vast empirical literature has long highlighted that incumbent players often tend to capture the regulator to their own advantage and to the detriment of potential new entrants, and there is no reason to believe that rating agencies would be different. Moreover, the mere existence of many competitors does not guarantee quality unless there is something causing high-quality producers to benefit and low-quality producers to suffer. Despite this obvious point, so far regulatory authorities have focused on measures to improve rating agencies’ incentives and to adjust investors’ degree of reliance on agency ratings, and showed no interest in considering appropriate disincentives or constraints to rating agencies’ misbehaviour, and in devising or enhancing remedies providing direct relief for low-quality ratings.

This approach is striking. Rating agencies are everywhere almost immune from any form of liability. In Europe there is no case law on point. In U.S., courts have failed to recognize the de facto regulatory power of rating agencies within the market, equating their ratings to mere opinions, thereby imposing liability on the agencies only when they were found causing the harm intentionally (the latest challenge brought to this legal trend is the lawsuit filed late last week by California Public Employees Retirement System, or Calpers, against Moody's, Standard & Poor's and Fitch, at the California Superior Court in San Francisco).


Be they keeping their private for-profit nature, or shifting to an international institutions’ owned not-for-profit structure, there is the need of a global strategy for imposing liability on credit rating agencies to ensure appropriate (public and private) accountability. In particular, agencies should bear a significant liability for their misbehavior, where ‘significant’ means that liability should be dependant on the negligent breach of  a pre-determined (and revisable in the course of time) set of duties. Beyond stay or stop of the activity, agencies should be liable to compensation, disgorgement, and penalties, whose amount should be linked to a fixed multiple, and imposed not to benefit plaintiffs but to feed an international fund to be set up with the aim to compensate victims of financial entities that become insolvent and leave investors holding an empty bag. Third party insurance coverage should be mandatory imposed upon the agencies, also to set a market-users friendly threshold for the agencies’ choice to leave, or to keep playing into, the market.

Finally, for the activities carried on by the rating agencies, which have a sweeping and truly global impact on the whole of the economies of States and inhabitants of the planet, what is needed is the establishment of a global jurisdiction, with de-centralized ad hoc courts applying the same substantive and procedural law.








* Full Professor of Comparative Law, University of Trieste, Italy

Scientific Director, International Association of Legal Sciences (UNESCO)

Maxwell Anderson and Teal Carlock


The MBA Oath is a voluntary pledge for MBAs to affirm their commitment to create value responsibly and ethically. The oath begins with the following premise: “As a manager, my purpose is to serve the greater good by bringing people and resources together to create value that no single individual can build alone. Therefore I will seek a course that enhances the value my enterprise can create for society over the long term.”



We are part of a team of thirty MBA students who created the oath during the past few months. We based our oath language largely on the work of Professors Nitin Nohria and Rakesh Khurana as published in the Harvard Business Review last October.



As we prepared to graduate into the worst economy since the Depression, our classmates were aware of how the public had lost trust in business leaders and in MBAs particularly.  Many in the public expressed disdain for MBAs and looked at us as greedy, dishonest, and incompetent. While we believe that some of this criticism went too far, we also felt we should be humble and acknowledge the mistakes that led to the financial crisis, many of which were made by MBAs. Our intention is to learn from the past, and redouble our commitment to do better in the future. We want to be known as leaders who look after the best interests of their clients, customers, employees and shareholders – leaders who make the ethical decision despite the pressure for profit maximization. We want to regain the trust of society. We want to take this opportunity to make a stand for what is right. 



In 1908, when Harvard began the world’s first two-year masters program in management education, it was called a “great, but delicate experiment.” The experiment proposed to turn the occupation of management into a profession, like law or medicine.  Leaders of the business school movement wanted to ensure that large corporations, which were just coming into existence, would be run in the interests of society.  It was an effort to say “We are all in this together.” The question is: Has the experiment succeeded?  Is society better off for having MBAs? Today that question is more relevant than ever. 



The truth is business schools have never fulfilled their founding mission to make management a profession. Even a cursory examination of medicine or law will show that these fields are professions in a way that business is not. And yet in America every year there are more than twice as many MBAs graduates than MD and JD graduates combined.


In the autumn of 2008 Rakesh Khurana and Nitin Nohria wrote an article for the Harvard Business Review titled “It’s Time to Make Management a Profession.” In it, they gave a blueprint for restoring prestige to the MBA degree. They convincingly explained that making management a profession is not a new idea, but is instead a fulfillment of the original vision for business schools. As part of the professors’ blueprint for change, they advocated for a professional oath for MBAs, a sort of Hippocratic Oath for Managers. Before reading the article, we had the same idea and had begun working on a pledge. Once we met professors Khurana and Nohria we decided to not re-invent the wheel. We took the oath they had drafted, made a few edits, and focused our efforts on putting the idea and into action. 



The MBA Oath began as a voluntary, opt-in, grassroots initiative among our classmates to get 100 Harvard Business School students to sign the oath by graduation. We thought getting 100 signers, or more than 10% of our class, would have symbolic power. We did not anticipate that in less than a month more than half our class would sign or that we would get more than 1,300 signers from over 140 business schools around the world to sign. We’ve now been featured on NPR, the Economist, The New York Times, The Financial Times, and countless other media venues. Whether they agree with us or not, people are talking about business’s duties to society, which we think is a healthy development.



Why has the MBA Oath garnered so much interest? First, timing has helped the MBA Oath movement tremendously. Professors Khurana and Nohria have been writing about the idea of professionalizing management for many years, but only after witnessing our economic system fail so spectacularly did people appreciate the need to reassess the priorities of business. The oath offers a refreshing opportunity to join a movement that aspires for a new kind of leadership during one of the worst periods of economic distress in modern history.  Now there is a tremendous readiness from not only the business community but also from society for a higher standard of ethics and ideals for our business professionals. Second, our initiative has been led entirely by students. Critics have no grounds to dismiss it as a PR gimmick for business schools when it is the self-organized work of young people who want to change the business world for the better. Third, the commitments the oath requires are both challenging enough to take seriously and simple enough to not be overwhelming.  Finally, we believe the oath represents the authentic values of a new generation of MBAs who truly are not “just in it for the money.” Of course there are still some of those, but in our experience many of our classmates sincerely want imbue their professional life with meaning and to leave a positive mark on the business world and society.



Our goal is to begin a widespread movement of MBAs who are committed to living out the principles articulated in the Oath. We hope the Oath will accomplish three things: a) promote accountability and responsibility for students who take the oath, b) encourage the entire MBA community to work with a higher professional standard, whether they sign the oath or not, and c) create a public conversation about professionalizing management and restoring trust in the MBA degree.  The third goal may be the easiest to measure.



As for the first two goals, only time will tell. The power of the oath is not in the moment of taking it, but in the thousands of decisions which are later influenced by the oath.  We have publicly agreed to follow the moral right, deciding to do well and be good. Substantial research suggests that public commitments of this kind do influence behavior, even in the absence of a “stick” to punish non-conformity to the principles. That said, we are exploring ideas to give the oath more “teeth” as the movement progresses.



During this unique time in history, we as members of the business community can reconsider the impact we have on society and how to lead as thoughtful and ethical professionals.  We are hopeful that this is an important, if small, step towards professionalizing management, restoring public trust in MBAs, and building a more ethical, thoughtful business culture.



By Rakesh Khurana and Nitin Nohria*

The economic crisis has raised fundamental issues about corporate regulation, governance, and business culture. Today, our first priority has to be to get our financial system moving again and put in appropriate regulations. We trust our finance ministers are up to this task. But longer term, we believe that it is essential to take steps that put business on a path toward sustainable economic growth. This cannot be achieved through financial engineering or a continual transfer of public resources to the financial sector. Instead, it will require a significant departure from the managerial paradigm of shareholder maximization paradigm that has guided corporate boards and executives and also been the staple of business education over the past three decades.


To put our global economic system on a path toward sustainable long-term growth, business leaders must begin to embrace a way of looking at their role that goes beyond their narrow responsibility to the shareholder and includes a broader commitment to their duty as institutional custodians. We need to create a new set of global principles upon which sustainable economic performance can be constructed. One path we have suggested is to put management on the same footing as other professions in which societal interest is paramount to how the work is done. In other words, we need to make management a profession. True professions, like medicine or law, have codes of conduct and the importance of adhering to these codes is taught as part of the formal education required of their members. These professional codes come with an implicit social contract: trust us to control an important occupational category, and in return, we will conduct ourselves with high standards and integrity.


The idea of management as a profession is not new. It was launched in the United States with great hope a century ago with the founding of the United States’ first university-based business schools. The vision was the large corporation would be run in the interest of society by turning the occupation of management into a bonafide profession, like medicine or law, with the educational underpinning, certifications, and code of conduct that go along with it.  


These were certainly lofty ideals, but the pressures of a growing economy soon put a strain on them.  As demand for managers exploded after World War II, universities across the United States, and later in other parts of the world, responded by establishing new schools, more programs, and by diluting the content of their offerings.  Courses in business ethics and the relationship between business and society were quietly abandoned, and the emphasis shifted from “professionalism” and “education” to “vocationalism” and “training.”  Then, in 1959, both the Ford Foundation and the Carnegie Corporation criticized the purely vocational nature of business school curricula, and called for more emphasis on academic standards and rigorous research.  Management, they believed, was an applied social science. This perspective had far reaching consequences on the way it was studied and taught.  The foundation’s directives, along with the funding they provided, led to the recruitment of business school faculty from the social sciences, mathematics, and engineering in the 1960s and 1970s.  Many of these new faculty members were trained in economics, and this period accelerated the development of the economic theories that form the staple fare of MBA courses today.



It was a perfect storm.  For just around the time concepts such as agency theory and efficient-market theory found their way into the classroom in the 1980s, the system of manager-dominated capitalism was collapsing.  Thus at the very moment that increasingly aggressive investors were taking advantage of the growing market for corporate control to extract greater value, MBA students were being taught that they were merely agents, bound by arms-length, contractual relationships to clients and shareholders. Long before the accounting scandals of 2001, let alone the crisis that is unfolding today, management had ceased to be guided by the ideals of a profession.


What would it take to return management to a professional footing and refocus managers on creating long-term sustainable performance in the interest of society? As a first step, we propose creating a code of conduct that orients managers towards their professional obligations and responsibilities. (We have written an example of a code in an article in the October, 2008 issue of Harvard Business Review.) The resolution of this code is inspired by the way doctors and lawyers, members of true professions, define their purpose.  Doctors seek to further the health of their patients.  In doing so, they not only honor the sanctity of each individual life; they also meet society’s need for healthy citizens.  A society of unhealthy, infirm citizens would inevitably be a weak society.  Similarly, in our adversary system of legal representation, lawyers seek to ensure their clients’ interests are protected.  In doing so, they not only honor the rights of each individual to due process under the law; they also meet society’s need to prevent lawlessness.


What is the parallel for managers?  Modern societies have a huge interest in creating organizations that enjoy the public trust and can mobilize resources to create economic value greater than the opportunity cost of all the resources used.  Managers, in our view, must be agents of society’s interest in this endeavor.  This formulation, explicitly affirms the importance of ensuring that the enterprise creates value; firms that destroy value hurt not only their shareholders, but also the broader social trust in firms’ ability to create value. 


At the same time, we explicitly recognize that to ensure ongoing legitimacy, an enterprise must meet all the legitimate claims placed upon it. And by turning managers into agents of society’s interest in thriving economic enterprises, we break out of the futile debate that requires us to define managers as agents either of one narrowly defined master (shareholders) or of many masters (stakeholders) who have conflicting interests.


The Oath we propose for managers also explicitly emphasizes the importance of staying focused on creating long-term sustainable value; putting personal self-interest behind the interests of the business the manager is entrusted to serve; acting with utmost personal integrity and in accord with the letter and spirit of the laws that govern managerial behavior; promoting transparency and representing the performance and risks of their enterprises accurately and honestly; protecting the interests of all constituencies, including the natural environment, whose well-being depends upon a manager’s actions; applying the best available knowledge and judgment while making decisions; developing future managers who can also become standard bearers of the management profession; and acting in a manner that increases the honor and trust that mangers enjoy in society.   These clauses may not be perfect or complete.  However, they have served as a useful starting framework for many groups interested in restoring the trust that managers have lost (including the Young Global Leaders of the World Economic Forum, the Business and Society Program of the Aspen Institute, and a grassroots MBA Oath movement spearheaded by our own MBA students at Harvard Business School).   


We know from social science that the behavior of human beings is greatly influenced by the expectations placed on them and the context within which they operate. If management were to be seen as a true profession guided by a broadly agreed upon and shared global code of business conduct, our expectations of the moral conduct of managers and their expectations of themselves would rise. This can be an important step in restoring the frayed trust in business and capitalism.


* Rakesh Khurana is the Marvin Bower Professor of Leadership Development at Harvard Business School and the author of From Higher Aims to Hired Hands: The Social Transformation of American Business Education the Unfulfilled Promise of Management as a Profession (Princeton: 2007). Nitin Nohria is the Richard P. Chapman Professor of Business Administration and the co-author of more than 10 books on human motivation, leadership, and corporate transformation and sustainable performance. This posting draws extensively on prior work they’ve done in this area.




As a contribution to the debate on the proposed new “Global Standard” (see: an  Italian-led working group has drawn up, with the assistance of the OECD, a list of 12 “common principles and standards” designed to support efforts to relaunch the world economy on a new and more stable growth path.

Drawing on existing agreements and instruments where available and on newly developed codes where needed, the 12-point proposal would provide an ethical and legal framework to underpin propriety, integrity and transparency in international business dealings.

The proposed “12 commandments” were prepared with OECD help by a working group including legal and financial experts, academics and politicians in support of discussions hosted by the Italian Ministry of Economy and Finance in Villa Madama, Rome, on 11-12 May 2009. Those discussions fed into the so-called Lecce Framework for the global economy endorsed by G8 Finance Ministers at their meeting in Lecce, Italy, on 12-13 June 2009.  G8 leaders will further discuss the principles of propriety, integrity and transparency at their L'Aquila Summit later this week.

The working group’s proposal takes as its starting point the notion that “a strong, fair and clean economy must be based on the values of propriety, integrity and transparency (and that) these values should be promoted by public policies and be upheld by business.”

The proposal calls for international cooperation to avoid any “race to the bottom” in labour, socal and environmental standards and regulatory arbitrage. It condemns tax evasion and corruption, and calls for accountability and fairness in relations between company management, boards, shareholders and other stakeholders.

The full text is as follows:

Common Principles and Standards on Propriety, Integrity and Transparency

1)          A strong, fair and clean economy must be based on the values of propriety, integrity and transparency.  These values should be promoted by public policies and be upheld by business. Effective monitoring of the implementation of these principles and standards should be undertaken on a regular basis.

2)          Governments, companies and all business entities, irrespective of their legal form, around the world should recognise that these values are the keystone of a market economy which serves the needs and aspirations of citizens of every country and which deserves their respect and confidence.

3)          Any “race to the bottom” in labour, social and environmental standards and regulatory arbitrage among jurisdictions should be prevented through international cooperation and convergence of domestic legal frameworks.

4)          Tax evasion and avoidance are harmful to society as a whole and companies and all business entities, irrespective of their legal form, should fulfil their fiscal duties, including by respecting the arm’s length principle in transfer pricing practices.

5)          Government / business interaction, including lobbying and “revolving door”, should be conducted in accordance with principles which are balanced, transparent, fair to all parties, and enforceable.

6)          Business practices and governance of companies and all business entities, irrespective of their legal form - whether traded or non-traded, private or State-owned - should ensure accountability and fairness in the relationship between management, the board, shareholders and other stakeholders. Financial structures and instruments should not be misused in order to hide the true beneficial owner and corporate vehicles, in their various forms, should not be used for illicit activities, including money laundering, bribery, shielding assets from creditors, illicit tax practices, self-dealing and diversion of assets, market fraud and circumvention of disclosure requirements.

7)           Disclosure of timely and accurate information regarding the activities, structure, ownership, financial situation and performance of companies should be ensured.

8)          Pay and compensation schemes should be sustainable and consistent with companies’ and all business entities’, irrespective of their legal form, long-term goals and prudent risk-taking.

9)          Bribery, including bribery in international business transactions, should be established as a criminal offence and effectively prosecuted and punished.

10)   Money laundering should be criminalised and the crime of money laundering should be applied to all serious offences, with a view to including the widest range of predicate offences.

11)   Any form of protectionism should be banned.

12)   Bank secrecy should not constitute an obstacle to the application of the above mentioned principles , including tax compliance worldwide.

by Prof. Dr. Uwe H. Schneider, Director of the Center of German and International Law of Financial Services, Johannes Gutenberg-University Mainz, Germany.



Globalisation has lead to an open market without common legal rules. However, there are a number of common standards, principles etc. such as:



-         the OECD Corporate Governance Principles

-         the OECD Guidelines for Multinational Enterprises

-         the UN Global Compact and

-         the Basel Committee Principles: Enhancing corporate governance for banking organisations.



These principles are a useful start for a common framework for national, cross border and international behaviour of market participants. Recently we have learnt a lesson from the financial crisis. This urges us to revise these codes, principles etc. Among others the duty to implement a risk management has to be laid down in the OECD Principles of Corporate Governance.



But why do we need a new Global Standard? The idea is persuasive! It is obvious that such a Global Standard should not just repeat what has already been regulated. So, what is the added value to the existing codes, principles etc.? After consensus about the benefit of a Global Standard we should be more concrete.



First: What type of principles and standards are we talking about? It is a common place that companies and their directors should follow legal rules such as anti-bribery-rules, anti-trust-rules, tax-rules, etc. These legal rules are national rules; they may differ and create conflicts in a global market. National rules are complemented by international principles and standards.


But for many reasons the legislator has reached the limits of his scope of action. Ethical rules cannot be decreed, trust cannot be ordered, evasion cannot successfully be regulated and to often the law can not be executed. The actual financial crisis is both namely a crisis of the rule of law and a rebirth in the trust into a common rules.



But: We need a new, an additional level of standards.



Therefore: The principles and standards of the Global Standard should connect and limit. They should connect all addressees global wide and they should limit their behaviour. The Global Standard should contain ethical and social standards for the behaviour of all addresses in the market. The Global Standard should stress propriety and integrity, sustainability and transparency.



Second: Who should be the addressee of the Global Standard? Only the directors and the members of the board? Legal duties are only imposed on the company, its directors and to some extend to the shareholders. The Global Standard should have wider implications. The well being of the company is in the interest of all stakeholders, even in the interest of the society. And the common principles should address all stakeholders including the legislator and the administration.



Third: The Global Standard should recognise self-determination of individuals, freedom of contract, freedom to form companies, a free market including cross border and international trade. But the goal of the Global Standard is to bring into mind that there are limits for human behaviour, short term and long term responsibilities and ethical rules.



Fourth: One of the most important reasons for the actual crisis is the permanent attempt of the intellectual elite to find a way to evade rules. Evasion of accounting rules, supervisory rules, tax rules, etc. has become a global sport – and a big business. “Evasion” is one of the hottest issues in town – even in countries where principle based regulation has a long tradition. For the national legislator it is nearly impossible to tackle this problem as evasion also includes the exploitation and capitalisation of the differences between legal systems (“legal systems shopping”).


Therefore: The Global Standard should condemn the evasion of rules and standards.



Fifth: Often the ultimate shareholder, the ultimate contracting party, the ultimate holding company, the ultimate debtor and the ultimate creditor is not known to the public. Groups of companies, various forms of intertwining, international cross holdings are not transparent. Therefore the public is not aware, who is bound by the standards. European and national laws foresee that important holdings have to be disclosed. In reality instead of the real shareholder nominees are registered and major shareholders try to remain anonymous by hiding in the bushes.


Therefore: The Global Standard should stress the idea of transparency of market participants.



Sixth: Companies, their boards, their directors and officers have to follow the rules, principles and standards. In groups of companies not only the individual company, their boards, etc. have to follow the rules, principles and standards. In addition the holding company carries a responsibility for all subsidiaries.


Therefore: The Global Standard should express the idea that the holding company carries a special responsibility for the group.



Seventh: Even on a national basis the “race to the law” takes too much time and has to cross many obstacles. In an international setting it is too often nearly impossible to execute the law.


Therefore: The Global Standard should remind that only law executed is good law.



Eighth: The Global Standard should not be a legally binding code. But it should be made public, whether the addressees feel, that they should follow the principles and the recommendations – and act in this way.




by Avi Singh (barrister, admitted to practice in California and India)


Regulations and laws often reflect prevailing wisdoms, or ideologies, though the latter is a label often labeled on ideas and assumptions one opposes. The current crises has certainly called into question prevailing wisdoms, as crises are wont to, and any reform will have to address the failures of assumptions that have guided past policies and frameworks, and norms on international and national regulation of financial markets, capital flows, taxation, and financial globalization and integration. New assumptions will necessarily be contested, not merely from differing normative ideas on the “should” of the system, guided in part by differing emphasis on efficiency, equality, justice, and in part by historic experiences, but also by lingering habits and proponents. Any attempts at globalised norms or principles, essential to a globalised response to a globalised problem and a problem with a particular type of globalization, must address the question of normative assumptions that are no longer viable, and are merely ideologies which contribute to the crises in global financial capitalism rather than to making attempts such as the Lecce Framework constructive efforts.

            There has indeed existed a normative assumption, unrestrained by factual evidence, that unfettered global financial markets, with their abstractions of efficiency, must be beyond municipal, multinational and international law because they not only contributed to, but were essential to, economic growth. A normative consensus had formed around such a principle that survived the arguments and questions posed by the East Asian crises of 1997, a crises whose causes lay, as they do, in the assumption of markets being efficiency, and thus, driving economic growth. Ironically, the response of international finance policy-makers was to prescribe a strengthened emphasis on unregulated and unfettered integration with global financial markets, with the hope that the rationality of markets would eventually lead to a growth equilibrium. National responses, understandably and rationally, did not necessarily concur, and in their varied responses all sought to hedge against the rationality of markets by carrying significant dollar reserves.

            Thus, global financial capitalism, in general terms, was granted a zone of legal exclusion because of its role in encouraging economic growth. It was not to be heavily taxed, subject to restrictions on movement, disclosure, rules of ethical conduct, anti-monopolistic rules, protection for consumers and invesors, transparency, rules derived from principles of trust. Such rules were not necessary because the system was rationally positive, leading to paraphrase Reverend Martin Luther King, towards an arc of growth, bending towards prosperity. The difference of course was that Revered King spoke as a man of hope with faith in the course of history, while the assumption for financial markets let to a framework of international principles that effectively sought to exclude global financial markets and global financial capitalism from meaningful regulation. Law and regulations, were applicable, were designed to facilitate the efficient functioning of the rational market, not ensure that it was consistent with public policy. The entitlement, not granted to the local butcher, was to ensure that it would lead to economic growth and prosperity.

Such an assumption seems topically naïve today, but its strength of endurance and elegance of proponents are not to be underestimated. Some have categorised the current crises as distortion brought about by bad actors rather than systematic issues. However, there is growing evidence to suggest that even in its hey day, global capitalism never, in itself, has tended towards causing economic prosperity, unless prosperity is measured solely as returns from capital. For instance, India achieved almost equal growth rates in the 1980s and 1990s, and while it may be argued that India has never been integrated into the financial markets, India changed its policy to attract capital flows in 1991 markedly, and did attract capital flows exponentially higher in the 1990s.

However, even from the narrow perspective on returns of capital, it is unclear that global financial markets maximize returns on capital. Interest rates in India, like in other developing countries, are approximately 10%, and capital is at a premium t businesses and individuals. Credit to farmers or those on the economic periphery is even more dear, and often informal at close to usury rates. The dearness of credit is unrelated to the risk to capital, as microcredit institutions have proven in practice. Financial markets invested in sub prime mortgages, and derivate products, backed by increasingly sophisticated mathematical models, whose abstractions of efficiency are necessary rhetoric for globalised, impersonal systems. The economics of efficiency of global financial markets require large economies of scale, rather than an efficient balancing between risk and reward for capital invested. Global financial markets as a vehicle for maximizing returns on capital is also an assumption that is no longer sustainable.

Indeed, as financial engineering has replaced real engineering, even growth has been abstracted to echo the assumptions that financial markets encourage growth. As real incomes in most developed countries have stagnated, growth of financial transactions has continued unabated, with the pressure being somewhat eased by the availability, at least till recently, of cheap credit. Financial assets intermediated through banks reached an astonishing USD $ 477 trillion (McKinsey) while the export of good and services totaled USD $6.1 trillion.

The only other legal rational for offering capitalism unfettered international and transnational exclusion from meaningful regulation is an argument from classical legal thought that one has the right to invest private property, in this case, capital, without interference, and be allowed to earn returns from the capital. Such an argument, even further back in history, has never reflected the practice of global capitalism, which as often dependent on public enforcement of private property rights, sometimes with colonial armies and gunboats. Thus, the private property right of global capital is heavily dependent on public enforcement of such a right, even more heavily dependent on enforcement than the property rights recognized in immovable or movable property. Yet, the latter forms of property rights are heavily regulated, and subject to taxation, and other regulations to ensure that property rights are practiced consistent with public order and public policy of promoting moral, ethical, and values of justice. No man’s home is his castle! Further, that the market benefits of monopoly warrant extreme regulation is an acceptable norm which applies to systematic players, the lead actors in global financial capitalism, who advantage from their systematic advantage in the system, and from the systematic risk that their failures would endanger.

Thus, economic efficiency or promotion of economic growth do not justify the entitlement, and even the right, to be excluded from public regulation. The Lecce Framework is an important beginnining, along with other frameworks, to state the principles that will inform the setting of rules that will form the basis of what needs to be a formation of public international law. As in all exercises in establishing norms and rules in public international law, the articulation of principles without rules is a more realistic, albeit modest, goal, and there have been some principles that have already been articulated. Morality and ethics – the foundations of propriety and integrity – are necessary, but cannot be assumed as the norm, but one that rules must incentivise.

The principle that the principles of propriety, integrity and transparency require public regulation that effectuates public policy in a pluralistic, democratic manner is a principle that must be addressed. Without such a principle, the entitlement of legal exclusion will continue to exist, even without any foundation for the assumptions that justify it. Indeed, such a principle is already the basis of numerous rules to regulate other forms of global flows of capital, which for numerous reasons, are considered as contrary to international public policy. The work of the Financial Action Task Force, the institutionalized information exchange between tax authorities  to combat money laundering, terrorism financing, and increasingly tax evasion, are all examples of international rules that strictly regulate forms of global capital flows. There is no normative reason to draw the line short of regulating the citadels of global financial capitalism, for the cost to the international community from the formalised system is far greater than the cost from peripheral activities such as money laundering.

by Giulio Napolitano, Professor of Public Law - Roma Tre


Every political, economic or social crisis may have a silver lining. It becomes a learning experience, changing the mainstream of the political process and the existing patterns of economic and legal analysis. This is exactly what happened at the time of Wall Street crash in 1929, with the rise of the Regulatory State in the U.S and of the Welfare State in Europe. Also the 2008 financial crisis is going to change radically the economic role of the State.


In the last few months, in a context of economic emergency, private losses have been made to weigh on the public purse, assets and securities have been brought under State control and banks have been nationalized. But what we do still need is to establish a new global order for economic activities in which prosperity, welfare and fairness can be assured all over the world. To achieve these objectives global leader must face four main challenges.


The first challenge is to assess the proper economic role of Government. The increase in paperless financial operations and the deregulation of oversight has led to the emergence of the State as savior of the financial and economic system. What just happened reminds us that the stabilization role performed by the State is fundamental. This is often overlooked in times of economic and market expansion, but it is bound to re-emerge suddenly in crisis situations, particularly financial ones. That’s why we must provide the Government with the tools it needs to manage financial and economic emergencies.


The second challenge is to enhance transparency and accountability of bailout and stimulus programs. These measures, even if necessary to avoid the collapse of the economic system, put taxpayers and future generations money in the hands of financial institutions and economic actors. That’s why they might be intended just as the result of a market exchange in the political process, at benefit of the most organized pressure groups.


Bailout and stimulus packages, even more if partially failing and eroding the financial stability of States, could be strongly questioned in next months and put on crisis democratic institutions. That’s why discretionary powers given to the Executives to manage the emergency must be balanced by parliamentary oversight and public opinion scrutiny. Moreover, collective money injected into the market must arrive to the people, assuring an adequate credit flow to the economic operators and to the families affected by unemployment and adopting new social welfare programs.


The third challenge is to address an effective regulatory reform in order to extend the scope and the efficacy of rules and supervision to banking and financial markets, with a view to the prevention of future crises. We need to extend the area of public oversight; to find a new balance between command and control and market incentives regulation; to protect consumers and investors from financial abuse; to intensify the level of cooperation and integration between supervisory authorities, both at national and supranational level.


The fourth challenge is to establish a more stringent and effective global standard for all economic activities than what is currently in force. The objective is to prevent competition between legal orders from giving rise to a race to the bottom capable of overwhelming any value and protection and to reduce the margins for dangerous regulatory arbitrage by operators.


Today, in different areas of international trade, there are already multiple rules and standards. But they are unrelated one to the other, with many loopholes in the middle; often they are set by private regulators, some times very close to regulated actors; finally they are entrusted to soft law instruments and provide only for limited and often ineffective enforcement.


That’s why we need a codex of existing legal rules of international trade; to fill the gaps; and to adopt new enforcement mechanisms, clearly mandating both supranational and national authorities to enforce and implement set standards at the international level.


In the last two decades we left a global disorder came out at the expense of the weaker countries and people. Time has come to move the visible hand of the law and to establish a new global order.


The Global Standard is a very important initiative that the Italian G8 Presidency has been working on with the help of the OECD, to build a more stable global economy, grounded in the principles of propriety, integrity and transparency. The crisis has revealed these as key issues we have to focus on to help governments and societies build a stronger, cleaner and fairer world economy.


The Global Standard has been endorsed by the Lecce G8 Ministers of Finance meeting and will be further discussed by world leaders at the G8 Summit in L’Aquila.


We need to respond to these calls but at the same time we want to get it right. One way is through your feedback, hopefully generating a more open and informed discussion.


The goal of the blog is to provide a “meeting place” where information sharing and discussion can take place. We invite and welcome comments from representatives of all stakeholders and civil society.


Your participation through the Global Standard Blog will help shape the decisions of government leaders.


I look forward to a very interesting discussion and to learning from it,

Angel Gurría






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