America’s New Internationalists

How can you best put all the world’s companies effectively on the same balance sheet?

May 23, 2000

How can you best put all the world's companies effectively on the same balance sheet?

For the longest time, a battle of epic proportions seemed to be brewing the arcane world of global accounting standards. At the heart of that debate was whether U.S. authorities — considering themselves at the top of the universe on accounting standards — would be willing to accept the new standards that were developed by a London-based body, the International Accounting Standards Committee. It saw its mission in putting the all the world’s companies effectively onto the same balance sheet.

In a rapidly integrated global economy, that seemed reasonable enough an endeavor. And yet, there was a great deal of resistance. The reasons for the U.S. opposition to this seemingly reasonable venture were manifold, ranging from the “not-invented-here” syndrome and charges of too much of a European influence to some technical arguments.

Now, all of a sudden, the U.S. Securities and Exchange Commission — the agency that regulates the country’s vibrant stock markets —- is moving dynamically in favor of accepting the global rules. What has caused the change of heart? Perhaps U.S. regulators are beginning to realize that the international accounting rules aren’t so bad after all.

But more likely, it has to do with the fading fortunes of the New York Stock Exchange. The NYSE has long urged the SEC to be more flexible on the accounting issue to attract more listings by foreign companies. Until now, foreign companies that wanted to list on any U.S. stock exchange had to adhere to the so-called “generally accepted accounting principles” (a.k.a. U.S. GAAP).

The problem is that not too many corporations from abroad wanted to subjugate themselves to these U.S. rules — and thus passed on the opportunity to list in the United States. Quite predictably, the folks at the NYSE aren’t too happy about those lost business opportunities.

After all, the way they make money is by charging transactions fees for stocks listed on its exchange. The NYSE feels it has pretty much “harvested” what it can from the ranks of U.S. business. Most of its growth opportunities lie with attracting foreign companies.

Already, the NYSE’s managers are under pressure from nimbler stock exchanges, such as the Nasdaq, as well as electronic trading platforms that are eating into their business. They even had to call off the NYSE’s own planned initial public offering. Caught between the Electronic Communications Networks (ECNs) and its own venerable, but expensive traditions, the NYSE is getting more desperate by the minute.

That may be one of the main reasons why the SEC is now throwing it a lifeline, in hopes that many a foreign company — no longer forced to adapt its accounts to U.S. GAAP standards — would decide to list in New York. What a difference declining business fortunes of a venerable institution make for the U.S. willingness to live by international rules.