Just as the epidemic of corporate scandal spread far beyond the United States, so did the reaction of many governments and multilateral organizations. In Germany, for example, the Finance Minister responded to a series of high profile domestic corporate scandals by proposing a special task force to combat accounting fraud and better protect investors in private pension funds. The European Union began to actively consider tighter standards for auditors of public companies, new codes of conduct for securities analysts, and a new set of rules for the structuring and trading of derivatives. And the quasi-official International Accounting Standards Board gained credibility and influence at the expense of the Financial Accounting Standards Board, pressuring the United States to conform to a new set of international accounting standards, rather than the other way around. Indeed, regulators around the globe, whether or not emulating the specific provisions of Sarbanes-Oxley, began to actively rethink the boundaries that separate permissible from illegal corporate behavior, and they kept a close eye on the reforms that were unfolding in the United States.

In developing countries too, governance issues have begun to resonate as never before. The International Finance Corporation (IFC), an affiliate of the World Bank, initiated a series of regional corporate governance roundtable meetings with high-level policy makers and business leaders in Latin America, Asia, and Eastern and Central Europe. The sessions were convened to promote and explain the OECD’s recently published "Principles of Corporate Governance," a pioneering initiative to develop the core elements of internationally acceptable corporate governance standards and practices. Although the Preamble to the document appropriately recognizes that every country must adapt the Principles to their own legal and institutional circumstances, the document emphasizes that "common to all good corporate governance regimes is a high degree of priority placed on the interests of shareholders, who place their trust in corporations to use their investment funds wisely and effectively." This theme provided the basis for the regional corporate governance meetings, and as one IFC participant observed, "after years of trying to get policy makers and business leaders in developing countries to recognize the essential connection between corporate governance and access to capital markets, the unprecedented publicity triggered by the scandals in the United States and Europe has immeasurably elevated the attention paid to our agenda."

Governance Beyond Government

After an initial period of self-denial about the significance of the unfolding scandals, there has been a palpable shift in sentiment among even the most ardent defenders of free market orthodoxy, who hold that poorly performing companies should be accountable only to the merciless discipline of their shareholders. Many business leaders began to recognize that not only were individual reputations being destroyed, but the image and reputation of entire professions were being ridiculed and subjected to scathing indictments because their internal oversight and monitoring of corporate behavior had proven to be alarmingly negligent. Few would disagree with the assessment of the globally respected Peter Peterson, former US Secretary of Commerce and Chairman of one of the largest private equity firms, who observed that the public now puts the integrity of corporate CEOs about on par with used car dealers.

Goldman Sachs Chairman and CEO Henry Paulson reflected the extraordinary degree of reassessment that was going on in the international financial community when he conceded in a speech before the National Press Club in Washington, DC, last July that his own investment banking industry had contributed to a "crisis of confidence" that "has been a drag on the economy and the performance of our capital markets." This astonishing mea culpa by the leader of a venerable financial institution with a long roster of blue chip corporate and government clients was symptomatic of a sobering recognition at the highest echelons of the business world that a sweeping review of internal governance procedures was warranted and underway. Around the globe, other prominent business leaders exhibited a similar awareness that issues of corporate disclosure and accountability were suddenly in the public domain. Almost overnight, it became difficult to identify a major corporation, investment bank, law practice, or accounting firm that had not begun a serious reassessment of how it governs itself, examining such fundamentals as enforcement of corporate codes of conduct, the roles and responsibilities of outside directors, standards of disclosure of financial information to shareholders and regulators, and guidelines for determining executive compensation.

A similar wave of reform was instigated within the associations and industry groups that are charged with defining and enforcing performance standards for their respective professions. In both the United States and Europe, for example, stock exchanges suddenly announced their intention to tighten disclosure requirements for listed companies and review the permissibility of certain financing practices that were considered commonplace and acceptable pre-Enron. The National Association of Securities Dealers in the United States has become more aggressive in policing the behavior of its thousands of member firms and their employees, and recently launched an international campaign to advise the securities industry in other countries. And in Japan, where managerial concern for shareholder interests has rarely been at the top of the corporate agenda, the most influential private business association initiated a major review of corporate governance guidelines for its members in response to a growing rash of scandals. Even major business schools in the United States and Europe are hopping on the bandwagon, offering high priced executive training programs on a range of corporate governance subjects.

Ultimately, however, it is the shareholders who have the most at stake, and the scandals have jolted them into a newfound awareness of their own responsibility. Throughout the 1990s, as stock markets soared inexorably higher and higher, they were perfectly content to "buy and hold," seldom questioning the optimism of corporate executives, stock analysts, independent rating agencies, and everyone else who preached that the United States had entered an era of endless prosperity. Now, due to the scandals, they know better. Stung by the consequences of their passivity, shareholders have begun to exercise their responsibilities more diligently. Last May in London, for example, the shareholders of GlaxoSmithKline, a gigantic international pharmaceutical company, took the unprecedented step of voting to reject the proposed exorbitant pay package of the CEO and other senior executives. In like manner, shareholders in TV Azteca, one of Mexico’s largest television stations, resisted the controlling shareholder’s attempt to use the company’s resources to finance his unauthorized purchase of cellular phone licenses. And the Financial Times reported in August 2003 that in South Korea, the leader of one of the most influential shareholder lobby groups, the People’s Solidarity for Participatory Democracy, proclaimed the necessity of "a major overhaul of accounting procedures in Korea," as his organization filed a formal complaint with securities market regulators against the country’s largest auditing firm.