Mr. Speaker, on November 26 I asked the Minister of Finance whether or not he was planning any initiatives in the area of corporate governance. I asked this because I believe that Canada is certainly not immune from scandals like Enron and WorldCom which have occurred in the United States. Some have said the only difference is that our scandals are smaller. Of course here in Canada we have already seen the very negative effects of the collapse of companies like Bre-X, Livent and others.
I was reassured when the minister noted that he was very pleased with the cooperation that had been demonstrated to date by federal and provincial regulators and the private sector to implement an appropriate Canadian response to the issues highlighted by recent U.S. scandals. I would hope that the minister would sometime soon begin to consult with members of the House because corporate governance is a very important public policy debate that deserves the attention of elected officials as well as regulators and bureaucrats.
What we have is a crisis of confidence in the markets and the financial statements and information that underlie these markets. The directors and managers of public companies in Canada and the United States and indeed around the world are under severe pressure to show a steady improvement in the reported earnings of their companies. Failure to do so results in declines in stock values and perhaps the value of executive stock options owned by these same executives. The quantity of earnings have always been important. Now investors have concerns about the quality of reported earnings. This undermines confidence in the markets and is not conducive to attracting investment and economic growth.
In the United States, in a rush to address market confidence, the response has been swift and multifaceted. The Sarbanes-Oxley legislation was rushed in south of the border to address corporate governance issues. It seems to be encountering difficulties as regulators attempt to implement these laws. In fact, the exact opposite of the desired result may be occurring. Companies are being scared away and initial public offerings are being shelved as a result of the legislation. When people's trust in the system is undermined, they stop investing. It is as simple as that.
We need a made in Canada solution that is geared to our own needs and our own institutions. A very positive first step is the Canadian public accountability board which was established by the Canadian Institute of Chartered Accountants, the Canadian Securities Administrators and the Office of the Superintendent of Financial Institutions. This board is designed to provide a new independent public oversight for auditors of public companies.
The board will provide: one, more rigorous inspection of auditors of public companies; two, tougher auditor independence rules; and three, new quality control requirements for firms auditing public companies. This board is a very important and valuable contribution to an improvement in corporate governance in Canada, but other questions remain.
For example, should corporate managers face heightened responsibility for the accuracy of company financial statements? Should sanctions be civil, criminal, or both? Should there be a greater number of independent members on the boards of directors of public companies? Could the role of the audit committee of boards of directors be improved and enhanced? Should the chairman and CEO role for public companies be separated?
There are other broader issues, such as what is the scope of federal power in corporate governance? To what extent should corporate governance practices be legislated, regulated or made voluntary? To what extent should we differentiate the corporate governance requirements of small and large corporations? To what extent should securities regulators in Canada be offering greater protection for less sophisticated investors?
These are all very important questions. I hope that we can deal with them in the House or in committee at the earliest opportunity.