Do you think there is any effective way for governments to prevent executives from giving themselves outrageously large compensation that doesn't end up causing major inefficiencies, or should we leave it to shareholders to punish companies with abusive execs with lower stock prices? Is the US or Europe doing a good job with this? Is it as big a problem as it is being portrayed in the media? (Greg Pierce, Chicago, IL, USA)

My view is that government intervention to influence the level of executive pay is likely to cause more problems than it solves - I don't think that the politicisation of the issue would be good for the economy or for the workings of the capitalist system.

However, I do agree that there is a problem. The responsibility for tackling it lies mainly with shareholders and boards of directors. The former need to have a clear policy on what constitutes excessive rewards (not just pay but also pensions and other forms of remuneration) and to apply it consistently. Companies, for their part, need to explain more clearly in their annual reports, not just the detail of how remuneration packages are made up, but the thinking that lies behind their remuneration decisions - ie a good deal more than "our pay arrangements are designed to attract and retain executives of the highest quality".

If shareholders and boards want the capitalist system to be broadly accepted by the people at large, they need to do a far better explaining job on this issue.

How can some companies justify keeping huge reserves in their balance sheet without paying its shareholder a single penny? (Shinod Soman, India)

The balance between retentions and dividend pay-outs (or other ways of returning cash to shareholders) will always be a tricky issue. My general view is that, the more companies are subjected to a market test when they make large investments (ie they have to raise money from shareholders to do it, and get approval from them in advance), the better - retaining large amounts in the balance sheet can be a way of insulating management from such market pressures.

However, it is possible to go too far in the opposite direction. Arnold Weinstock, when he was running the UK's General Electric Company, was often criticised for his "cash mountain", and when he retired in the mid-1990s his successors set about spending the money as quickly as possible, with disastrous results. A lot depends on the nature of the business - companies involved in long-cycle capital projects subject to unforeseeable risks are clearly in a different situation from, say, a food retailer, and this is bound to affect policy on reserves.

Many commentators have stated that the passage of Sarbanes-Oxley discourages multinational corporations from listing in the US. Is there empirical evidence of firms deliberately avoiding stock issuance in America to avoid Sarbanes-Oxley, or even delisting in cases where they have already made offerings in the US? (Emmanuel Yujuico, Birmingham, UK)

I do not know of evidence that would indicate a significant amount of de-listing from US stock exchanges, but my impression is that European companies that were considering a listing on NASDAQ or the NYSE are having second thoughts, and the attraction of a listing in London has certainly increased.

If corporate governance is relevant to competitiveness, how come Asian economies, where minority shareholders are in high disregard, are faring so well? (Peter Setzer, Jacksonville, FL, USA)

I think most people would agree that bad corporate governance (including disregard for the interests of minority shareholders) was a factor in the Asian crisis of 1997-98, and that countries which were badly affected, notably South Korea, have taken steps to improve their governance arrangements. While there is no direct and obvious link between a country's corporate governance and its economic growth, those Asian companies that seek to compete on a global scale, and perhaps need to have access to non-national sources of funds - for example, the Indian IT companies - recognise the need for corporate governance practices that meet the expectations of foreign investors.

Of course that does not mean that they have to follow an Anglo-American model in every particular, and there is certainly no reason why companies which have strong family control - like the Tata companies in India - should not be well governed, paying proper regard to the interests of minority shareholders. I agree that the importance of corporate governance can be overstated, but it is one aspect of the process by which Asian companies have been integrating themselves into the world market, and needs to be given some weight.

Are you in favor of international competition in corporate governance rules, or in favor of international harmonization around shared principles?

I think there needs to be some degree of harmonisation - for example, in accounting standards - in order to facilitate cross-border investment - but I certainly do not agree with the notion that corporate governance rules should be harmonised.

For example, it may be that the German corporate governance system, with its two-tier board structure and employee representation on the supervisory board, suits the particular character of German industry, its culture and history, and indeed may constitute a competitive advantage for certain industries, especially those which rely on long-term upgrading of technical skills.

Competition between divergent systems seems to me to be healthy, as long it takes place within some agreed framework of open markets and as long as the rules that apply in each country are totally transparent, so that everyone knows where they are.

In the United States, regulators responded to the Enron and Tyco scandals by quickly introducing the stringent Sarbanes-Oxley requirements. In Europe, regulators’ reaction to the Crédit Lyonnais and Parmalat scandals appears to be much more gradual. Which is the best approach? (Luca Tamberi, Bologna, Italy)

My feeling is that Sarbanes-Oxley was to some extent an over-reaction, reflecting a political imperative to do something at speed after the scandals, and that it has led to problems which might have been avoided if there had been more time for consideration. To that extent I think a more gradual response is appropriate and preferable. But there is clearly a danger that gradualism will become inaction, and there are too many examples in Europe - post-Parmalat, and post-Crédit Lyonnais - of extremely poor governance practices.

Perhaps part of the problem in Europe is the uneasy division of responsibilities in this and other areas between national governments and the European Commission. Without wishing to suggest that everything is perfect in the UK, I think that a strong national regulatory body like our Financial Services Authority is essential, and that is still lacking in some European countries.

Some academics argue that outside directors make corporate boards more effective. Would you support a mandatory share of outside directors for listed companies? (Josh Frier, Baltimore, MD, USA)

I am not in favour of mandating a specific proportion of outside directors on a listed company's board - I think that the situation of companies can vary so widely (for example, the stage of growth: early-stage companies backed by venture capitalists might need a different board structure than mature companies) that it is wrong to impose a rigid framework on them.

What matters is that companies should be able to convince shareholders that the outside director element on their boards is strong enough to exert real influence on the management - their effectiveness has more to do with the character of the individual directors than with how many there are.

If most of the world’s companies are private, why are corporate governance debates focused on listed companies? (Margaret Willsbury, London, UK)

I think it is quite reasonable to suggest that corporate governance in private companies, especially larger ones, should receive more attention from academics than is currently the case - clearly some countries, including advanced industrial countries like Italy, rely very heavily on non-listed firms, and there is a strong public interest in how well or badly they are governed. Of course for academics that is a difficult subject to research!

The fact remains that most companies when they reach a certain size need access to external capital and need to be listed on a stock exchange, and that these companies occupy a very important place in the national economy - so (quite apart from the fact that more information about them is available to academics) it is right and proper that their corporate governance systems should receive a lot of attention.

European institutional investors have started operating on a cross-border basis. As they bring a more active, vocal presence at shareholders' meetings, will they help improve corporate governance practice in countries such as Sweden and Switzerland?

There is a lot of debate in Europe, as there is in the US, as to whether some of these institutional investors have a short-term orientation which could damage the long-term health of the companies they buy shares in, and I think this issue needs to be kept under active review. In general, nevertheless, I think that the increasing influence of investing institutions, on a pan-European basis, is good for European business and the European economy. They inject an extra ingredient of flexibility on managements which might otherwise be shielded from such pressures.

This does not mean that ownership structures and corporate behaviour in countries like Sweden and Switzerland will or should be transformed into an American-style system - clearly long-term patient investors like the Wallenberg family have made a big contribution and will continue to do so. But I think most advanced industrial countries need systems which facilitate the rapid transfer of resources from slow-growing to faster-growing sectors (and from badly managed companies to better managed ones), and aggressive institutional investors can help this process along.

Will France be able to develop good governance rules if its political and business élites come from the same few Grands Ecoles?

I am not an expert on France, but my impression is that the French economy suffers from the over-dominance of a group of large industrial companies with close links to the administrative élite, and that the character of the French educational system contributes to an undue centralisation of economic and financial power which is not healthy. To the extent that this concentration of power (sometimes reinforced by inter-company shareholdings) holds back necessary reforms, in corporate governance and in other areas, that is bad.

On the other hand, it is also the case that most large French companies now have many of their shares in the hands of foreign investors, and increasingly they have to play by the rules that those investors insist on. So there is a kind of struggle between the old, centralised, élite-dominated France and the new dictates of globalisation - I'm pretty sure which side will win, but it may take some time.