States and the UK are different, and nowhere is this more exemplified than by the respective responses by these two Government following major incidents of corporate fraud. This Case review compares some of the differences between the corporate environments operating in each of these jurisdictions, and explains how they may have contributed to such divergent responses.
One can characterise these responses as legislative and/or regulatory. Legislative responses refer to legal changes that are made, which force businesses to change their practice if they are to remain compliant. In this instance, legislation is an externally enforced means of changing corporate behaviour. Regulations on the other hand can be externally or internally generated, and can promote a desired change of behaviour through legislature or through Codes of practice developed by industry bodies such as the group representing licensed auditors. Whether the regulations are internally or externally generated, one important aspect in which they differ from legislative regimes is the higher degree of importance placed on monitoring of entities within regulatory regimes. Legislative regimes primarily depend on the sanctions to foster compliance.
Immediately, following the corporate governance crisis that occurred in the United States in 2002, the federal government implemented far reaching legislature, to protect investors from such levels of corporate fraud. On the other hand, when the U.K experienced a similar crisis in its corporate governance system in 1991, the response was much different. What followed was over a decade of Commission reviews which each provided best Codes of Practices for agents within the corporate governance regime. Eventually legislature on corporate fraud was only enacted in the Fraud Act of 2006. The analysis in this review points to some of the reasons that these government undertook such different responses.
Firstly, prior to the crises, there was significant