Ethics and governance in the European Financial centers

I have alredy evoked IMS Luxembourg, the association responsible for promoting Corporate Social Responsibility in Luxembourg.
I was suprised to see that wthere is something wrong with the governance of this association that should be an example, but it is true that in Luxembourg Corporate Social Responsibility is limited to promotional activities do not like those who call for business ethics.


When the association was lounched the board members were published dated 20 March 2007 :

Christian Scharff (Dexia), Chairman
Roland Verstappen (Arcelor Mittal) Deputy chairman
Eric Müller-Borle (Kneip) Secretary
Pierre Krier (PwC) Tresurer
Katia Scheidecker (Noble & Scheidecker)
Paul De Cooman (AXA)

These members were published in the press.

There is a new document online dated as well 20 March 2007, with the following members :

Christian Scharff (Dexia), Chairman
Rémi Boyer (Arcelor Mittal) Deputy chairman
Bob Kneip (Kneip) Secretary
Pierre Krier (PwC) Tresurer
Katia Scheidecker (Noble & Scheidecker)
Paul De Cooman (AXA)


In other words, an official document like a board composition was retroactively changed for the Deputy Chairman and the Secretary, which does not comply with governance good practices.

But it complies with the lax business culture in Luxembourg.

In the context of the financial crisis, Véronique Poujol from the Lëtzebuerger Land has recently published a lucid analysis of the situation in Luxembourg that unfortunately leaders deny.

In an article called “La souricière” (“The trap”), she observes that this crisis takes the Luxembourg leaders out of clipper and at the same time occupies them on two fronts:

Initially, it is necessary for them to dissuade the savers to withdraw their money to put it at home.

But the breach for Luxembourg opened on a second front: the contradiction of the Luxembourg model. Nothing is more volatile than the capital. The success of the Luxembourg business model, it is to be business friendly, flexible and pragmatic with the economic operators, including in the banking legislation. Luxembourg was flexible with the investors, more slackness with the savers that have a poor level of the guarantees. There will not be doubt in the arbitration which these people will make between the safety of their funds and discretion with which they are managed. The State have reserves which are not inexhaustible.

I could add the third front. As explained the lawyer Alex Schmidt the investor is not protected in Luxembourg when banks failed in their duty. In a book called La Responsabilité du Banquier en droit prive luxembourgeois (Banker’s liability in Luxembourg private law) he concludes that one could be pleased with what Luxembourg jurisprudence generally shows very clear-sighted vis-a-vis the investors from day to day (“L'on pourra se féliciter de ce que la jurisprudence luxembourgeoise se montre généralement très clairvoyante face aux investisseurs à la petite semaine”). In other words in case of litigation because of a bank failure, there is a country risk as the foreign investor will not win in justice.

I could add the fourth front, may be the most important: the international fight against tax havens and offshore jurisdictions with “powerstates” like the USA, France and Germany. These countries lack money to support their respective economy and I do not thing that the Luxembourg business doctrine as expressed by Lucien Thiel (former chairman of the Luxembourg bankers’ association), will be appreciated:
- It is not our duty to control if the taxpayer was honest,
- Luxembourg is not compelled to communicate its clients’ data

If Luxembourg leaders do not realise the paradigm shift to do the required aggiornamento, give them a couple of years not to say months and look them go bust.


Title from La Fontaine

Ernst & Young announced that its combined worldwide revenues increased to US$24.5 billion for the fiscal year ending 30 June 2008. This represented a year-on-year revenue increase of US$3.4 billion and a growth rate of 16.2% (9.5% in local currency [lc] terms). This growth was the result of winning new clients and the introduction of new services, as well as returns on investment in the emerging markets. It was partially offset by audit efficiencies enabled by the new US internal control standard and the economic downturn in many markets.

“This was an important year for Ernst & Young for more than just our continued strong growth,”
James S. Turley (Ernst & Young Global Chairman and CEO )

As I said for PwC such communication on the growth is indecent.

Auditors have a strong responsibility in the current financial mess as accounts certified cannot be trusted anymore.

By the way who audited Lehman Brothers ?