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From the US Capitol, to the rowdy chamber of the
British House of Commons, to the technocrat-filled halls of the European
Parliament, efforts are in full gear to rewrite the rules that govern financial
markets.

Similar to its first cousins, freedom, democracy,
free markets, and liberty, the word ‘reform’ in itself is so value-laden no one
dares lift a finger against it. And like all value-loaded concepts, its
vagueness makes it so easy to hijack. These days, no election campaign is
complete without extensive coverage of the candidates’ manifesto points on
‘fixing the financial system,’ whatever that means in operation. In the same
vein, no central banker, market regulator or stock exchange executive wants to
be left behind in this latest incarnation to pacify the marketplace. Everybody
wants to get a piece of the action.

No one seriously questions that reforms are
needed to instil greater transparency and trust into markets. In fact, many
items on the reform list have long been campaign issues among governance and
investor activists. However, until the market turmoil began, they were either
not considered urgent or the political will was lacking.

Presently, it is at the top of the legislative
agenda. Board member selection, remuneration, risk management, regulatory
capital, corporate governance and market monitoring are just some of the
mandates bestowed on various government- and regulator-instituted committees.
Reformania raises two questions. How much of the posturing will produce
substantive and positive gains for market participants? Second, up to what
point will the market bear before too much of a good thing turns bad?

Risk of reform overload

The Nigerian experience is a good example of the risk of reform
overload, especially when driven by a rainbow coalition of reformers. It is
hard to escape the sentiment that some, not all, of these crusaders only want
to be able to say ‘we are doing something about the stock market collapse and
executive misconduct’ too. Of course, that may be an unfair judgment. To clear
their names, they should be telling us what they were doing when these heinous
crimes against capitalism were taking place.

The taint of opportunism is unmistakable, almost like artistes
and thespians falling over themselves to identify with rescue efforts in the
weeks after the Haiti earthquake. But there is one big difference between
dilettante celebrities trying to do good by giving publicity to a humanitarian
crisis and regulators agitated by a market catastrophe.

When the showbiz crowd loses interest, they quietly move on with
no damaging baggage left behind. With regulators, the excess luggage of new
regulations, costly rules and conflicting laws will weigh down on the necks of
companies and investors for years to come. Just ask Mayor Bloomberg how much
New York City lost to London in its competitiveness as a harbour of global
capital after the passage of Sarbanes-Oxley.

In the past year, different committees have been set up to
review the functioning of the country’s capital markets and governance codes.
Motivated by occasionally overlapping agendas, each group has set out to work
on generic terms of reference such as improving transparency, enhancing
disclosure and protecting investors.

Only last year, the Dotun Suleiman-led Technical Committee for
the Review of the Capital Market Structure and Processes in Nigeria, created by
the Securities & Exchange Commission, released its report which called for
wide-ranging changes in the market. Before the ink on that document was dry,
other inquiries were set up by the Aliyu Ahmed Wadada-led House Committee on
Capital Markets, and the Senator Ganiyu Solomon-chaired Senate Committee on
Capital Markets.

These investigations were in addition to the sweeping changes
introduced by Lamido Sanusi, the governor of the Central Bank of Nigeria, aimed
at sanitizing the banking sector and those introduced by Arunma Oteh, the
director-general of the Securities and Exchange Commission.

More committees

More recently, last month, the ministry of finance inaugurated
two high powered committees, chaired by Fola Adeola, a respected former banker
and venture capitalist, and Konyinsola Ajayi, a senior lawyer, to review the
country’s capital markets and corporate governance rules. With so much activity
going on, investors wonder if these groups may not be duplicating each other,
or worse, unintentionally working at cross-purposes, creating room for reform
arbitrage among participants looking for the lowest cost rules regime. The
current re-regulation frenzy may lead to equally high costs for investors in
the long run.

At this rate, investors could soon grow weary of new reform initiatives and
rather insist on a report card on the implementation of existing rules like the
2003 Atedo Peterside Code of Corporate Governance. It is blatantly absurd to
imagine that merely passing more laws will make a society more law abiding.