Treasury's Paulson Endorses Principles-Based Regulation

Treasury Secretary Henry Paulson has urged the US to move towards more principles-based regulation similar to that in the UK and other jurisdictions. In remarks kicking off a conference on the capital markets, he eschewed a rules-based mindset that asks, "Is this legal?" in favor of a principles-based approach that asks, "Is this right?" I have recounted in earlier blogs how the UK is wrestling with just exactly what principles-based regulation means and that FSA Chair McCarthy believes that we will always have some mixture of rule-based and principles-based regulation.

He also emphasized that good corporate governance is a means to an end, not an end in itself. The Secretary noted that the basic principles that underpin a robust corporate governance system are accountability, transparency, and the need to identify and manage conflicts of interest.

He acknowledged that, as a result of Sarbanes-Oxley and other regulatory changes, corporate directors are more independent and more diligent about their fiduciary duties. Of course, directors must now spend much more time engaged in compliance processes and finding the right balance on the use of director time is critically important. But he reminded that the ultimate end-game of good corporate governance is better managed, more competitive corporations that earn investor confidence through sound leadership, thoughtful governance, and outstanding performance.