GoingGlobal 181owner orientation even less compulsory. If this is the case, the al-
ready small population of true owner-orientated U.S. managers will
shrin kfurther. On the other hand, the number abroad may grow
larger.
Financial markets increasingly compete internationally, just as
product markets have done for decades. Investors (suppliers of cap-
ital) now loo kacross borders for additional investment opportunities,
while corporations and other organizations see kthe lowest-cost cap-
ital from any market in the world. The isolation of capital markets
is disappearing, and head-to-head competition among financial mar-
kets has ensued.
The EU integrates corporate finance and governance in many
respects. Most significantly, the adoption of a single currency will
harmonize competition through the sharing of productivity differ-
entials—the fruits of technological advancement and higher invest-
ment. Business expense differentials, particularly wages, should
evaporate. The process is just beginning as countries adopt the euro
and ultimately abandon their local currencies.
Nearly as profound, new EU innovations are greatly diminish-
ing barriers to cross-border capital flows. A series of EU directives
compeled the abolition of foreign investment controls. Member
states enthusiastically responded to this call by relaxing their con-
trols. The remaining restrictions generally are limited to notification
requirements or to specified sectors that pose national security or
public health, safety, and welfare concerns. Many European coun-
tries simply retained the authority to implement such controls if
necessary.
Accounting
A series of fundamental principles has harmonized accounting rules
within Europe. These principles include (1) a requirement of uniform
formats for financial statements, (2) common valuation principles,
including historical cost, accrual accounting, and the principle of
conservatism called prudence, (3) a general mandate that financial
statements show true and fair value, (4) an annual audit, (5) public
filings, and (6) consolidation principles. A trend toward unified ac-
counting reinforces the harmonization trends in finance and gover-
nance.
Similar moves have occurred in Japan. Japanese accounting rules
now require consolidation of all the accounts of a company’s con-
trolled affiliates. In the past, the absence of such a rule enabled