Securities Commissions as Corporate Governance Enforcers (Authors: Gerard Hertig and Hideki Kanda)
Securities commissions around the world have been delegated significant corporate governance powers, in particular when it comes to issuer disclosure and insider trading. Enforcement, however, is largely discretionary and will not only reflect the public interest, but also the interests of multiple principals as well as those of the commissions' decision-makers. Generally speaking, the latter favor two enforement strategies to deal with these potentially conflicting interests: managing public expectations given limited enforcement resources and optimizing the regulatory burden. This paper argues that when both enforcement and compliance costs are high, securities commissions reduce the scope of securities regulation by forgoing enforcement, whereas they favor the prosecution of rapid resolution cases when both enforcement and compliance costs are low. When there is an asymmetry between enforcement and compliance costs, securities commissions either select clear-cut cases or favor a combination of high profile cases and private enforcement.