Speaking to the Corporate Reporting Awards 2002, David Brown, chair of the Ontario Securities Commission, reiterated his arguments for tougher governance rules in Canada.

“To compete on the world stage, we must continually demonstrate to others that they can have confidence in our markets. That, in part, is what the U.S. Congress was trying to do when it passed the Sarbanes-Oxley Act,” he said.

Brown refuted the argument, associated most often with the BC Securities Commission, that Canada can attract companies by offering a more lax corporate governance regime. He argued that investors must have confidence in the Canadian regulatory system, and that Canadian companies seeking to raise capital outside Canada need to have a good reputation behind them. “There is no quick profit to be made from failing to protect investors — only a slow, steady decline in the ability to raise capital. That is why we cannot ignore the challenge to market confidence that originated in the United States.”

Brown also rebuffed the suggestion that voluntary guidelines will be sufficient to improve investor confidence; an argument often advanced by the TSX Group. “Let me be clear on one point, there is no question that we must have clearly articulated principles. The problem is that principles are not always sufficient … Market participants need some certainty. We have an obligation to provide it.”

“It seems clear to me that securities regulations must be principle-based,” he stressed.

Brown indicated a couple of the U.S reforms that he sees as important. Audit committees must consist only of directors who are independent of management, as well the audit committee must become responsible for overseeing the auditors. He also allowed, however, that some of the new U.S. requirements may not be appropriate to our market structure. “In any reform effort, we need to provide a regulatory framework that addresses the diverse range of Canadian companies and their unique circumstances.”

Finally, Brown called on companies to strive for even higher standards of transparency and disclosure. “Your goal should not just be compliance with the minimum standards, but rather, to portray to your investors and the markets a full and fair picture of your company’s operations and financial condition.”