Getting Corporate Governance Right. Robert W. Hahn.  March 2005.

The conviction last week of former WorldCom CEO Bernard Ebbers is not just an American story. It is part of a powerful global tide toward higher standards in corporate governance -- a tide that, triggered by the American upheavals, is sweeping across most, but not all, industrial nations. The big question in the global financial and regulatory community is: When will reform come to the holdouts?

In the United States, the Ebbers conviction may be just the first of many. After a recent mistrial, former Tyco CEO Dennis Kozlowski must soon answer again to charges of looting the company of some $600 million, used to purchase amenities like the famed $6,000 gold-threaded shower curtain. Also approaching their day in court are Kenneth Lay and Jeffrey Skilling, whose lawyers must explain how, with Enron's stock collapsing, each managed to increase his net worth by tens of millions annually. Former Enron CFO Andrew Fastow has already pleaded guilty to similar charges, and is now serving a 10-year sentence. Then there's Richard Scrushy, the founder and former CEO of HealthSouth Corporation, who faces 58 criminal counts related to a $2.6 billion accounting fraud.

Exactly what justice requires in the cases still pending is, of course, for juries and judges to decide. But American authorities responded promptly and decisively to the corporate abuses of the late 1990s and 2001-2002. State and federal prosecutors, the Securities and Exchange Commission and other oversight agencies have been methodical and relentless. Congress and the president quickly enacted the Sarbanes-Oxley bill. Despite the resulting law's serious flaws, it represents the most sweeping series of corporate governance reforms since the years after the Great Depression.

Many other nations, meanwhile, have taken their cue from the vigorous U.S. action as they faced their own versions of Enron, WorldCom and other upheavals. Surveying the wreckage of corporate scandals in Europe and Asia, the record is largely, but not entirely, encouraging.

In Great Britain, there is the recent case of Conrad Black, who was forced out as chairman and CEO of Hollinger International following accusations that he diverted company funds into personal accounts. A special committee appointed by Hollinger has charged Lord Black with "self-righteous and aggressive looting" of more than $400 million.

In France, Vivendi executive Jean-Marie Messier was forced out after allegations the company had employed accounting tricks to inflate its profits. Last December, France's market regulators, the AMF, imposed a €1 million fine on Mr. Messier and Vivendi for misleading investors.

In Italy, executives of the dairy corporation Parmalat were found to be concealing debts to mask the company's true financial position. The inevitable end came in December 2003 with Parmalat's collapse under €14.5 billion of debt and in the prosecution and house arrest of Parmalat's former CEO, Calisto Tanzi.

Italy has known more than its share of corporate and official corruption, so the response of authorities there is especially praiseworthy. The European Commission also took notice, proposing corporate governance reforms to increase transparency and to make auditors more independent of the companies they are auditing.

Japan, too, has seen serious corporate scandal -- prompting authorities to answer with broad investigations. The most publicized example is that of Mitsubishi Motors Corporation, whose president, Katsuhiko Kawasoe, recently resigned in disgrace. Then came the arrest of Mr. Kawasoe, along with 10 other executives charged with concealing defects in Mitsubishi automobiles.

The most troubling exception to this surge of corporate reform is South Korea. Typical is the case of Chey Tae-Won, who in 2003 was sent to prison on a three-year sentence for his part in a $1.2 billion accounting scandal involving an oil-refining subsidiary of the SK Corporation -- a vast conglomerate, or "chaebol" as such enterprises are locally known. Mr. Chey, the scion of the publicly traded company's founding family, served just three months of that sentence and then promptly returned to his duties running the company. One of Mr. Chey's subordinates, Song Kil-seung, has also been convicted on charges of inflating profits by $1.7 billion, yet retained his position as chairman of the related SK Group. All of this would be unthinkable in any other industrial nation.

Meanwhile, on New Year's Eve, the South Korean government issued a new securities rule to further protect company managers -- no matter how incompetent or corrupt they might be -- from accountability to foreign shareholders who might try to insist upon the new international standards of corporate integrity and transparency.

The official mindset was evident when SK's largest overseas shareholder -- the Monaco-based Sovereign Asset Management investment firm -- asked a Korean judge "to perform the fiduciary and stewardship responsibilities which SK Corp's directors are unwilling to undertake." Nothing came of that, and so the case is now before the Seoul High Court. It wasn't a hopeful sign for worried shareholders when, just a few days ago, Mr. Chey actually got himself re-elected to serve as CEO for another three years.

As if the SK scandals were not enough, South Korea has seen a variety of other corporate fiascos involving two other chaebols, the Daewoo and Hyundai companies. Prosecutions are planned, and it may fall to Interpol to track down the founder of the now bankrupt Daewoo Group, Kim Woo-choong. Charged with fabricating financial documents, he has fled the country.

South Korea has become an important test case of legal and moral resolve against corporate crime. With capital markets now almost entirely global, each of the major industrial nations has a stake in the standards set in each of the others. From WorldCom, Parmalat, Daewoo and other disasters, we have all learned that reckless greed is not unique to any one corporation, or to any one nation.

No society is exempt from the temptations of corporate corruption, and no country is exempt from the need for vigilance and reform. Responsible governance, transparency, accountability to shareholders and basic personal integrity are not foreign concepts in any society. They are the elementary norms of all commerce and investment, and they should be a given from New York to Rome to Tokyo to Seoul.

Mr. Hahn is co-founder and executive director of the American Enterprise Institute-Brookings Joint Center, which focuses on regulation and antitrust.

This article appeared in The Wall Street Journal -- Europe on March 23, 2005.