Jean-Pierre Roth: The long path to restoring faith in financial markets Speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank, at the CEO Luncheon of the Swiss-American Chamber of Commerce, Zurich, 4 September 2002. *  *  *  At the outset I would like to acknowledge the long-standing ties between the Swiss-American Chamber of Commerce and the Swiss National Bank. In the past, members of the Governing Board have been invited to speak before this select audience. It is a great pleasure and honor for me to continue this tradition. My remarks today will focus on the present challenges faced by the global economy: a crisis in confidence which has pushed equity prices to unexpected lows and an economic recovery which does not seem to take the desired path. Nevertheless, I am convinced that the fundamentals are in place for a return to sustained growth. Inflation is low in almost all industrial countries, monetary policy is supporting the recovery, household consumption still plays a stabilizing role and public finances despite short-term difficulties - are not far from equilibrium. While numerous factors are responsible for the present economic uncertainty, the prolonged volatility witnessed in equity markets has hit investors particularly hard. In hindsight the stock market correction fits partially the classic story of fundamentals; one that is driven by a bubbles collapse in dotcom companies and the anticipated slowdown in economic activity.
This has raised other issues of rotation of auditors to prevent cozy relationships undermining the integrity of the audit. A periodic change of the firm might have led to more serious questioning of the accounts. Further, some US firms have announced plans to include, as an expense, the cost of executive stock options. The changes aim to more accurately describe the revenues and costs associated with companies’ primary business. And Standard and Poor’s has introduced new benchmarks for reporting corporate earnings. These are all positive examples of participants working together to enforce the spirit of the rules under which financial markets operate. What has been done recently in Switzerland to improve the transparency of Swiss financial markets? Some efforts have already started some time ago. Most notably, the Swiss Exchange and the Swiss Business Federation “economiesuisse” co-ordinated their efforts to develop two sets of rules which became effective on July 1, 2002: The “Swiss Code of Best Practice” and the “Directive Concerning Information on Corporate Governance”. This will hopefully lift the standards for corporate governance and improve the level of transparency for the publicly traded firms in Switzerland. We have also seen political initiatives aiming at more transparency in remunerations. Business uncertainty It would be shortsighted to believe that the recent stock market reaction has only been the result of misconduct and the lack of corporate governance. The world economy is still digesting the consequences from the deep retrenchment in capital spending, which started in 2000 in the high-tech and the telecommunications sectors.