No Enrons here, thank you

Where the US leads, Britain follows. No we're not talking about Iraq, but financial reforms sweeping the UK in the wake of scandals at Enron and WorldCom in America.

Britain has dodged the financial shenanigans that wrecked such corporate titans, but the government had little choice but to undertake some financial tweaking of its own, once America started to clean up Wall Street and company boardrooms.

The US passed the Sarbanes Oxley law on accounting and corporate governance, creating a new accountancy oversight board, while Wall Street firms are being forced to pay more than $400 (245m) to finance independent research for retail investors.

Britain caught the reform bug because once the world's most important capital market started overhauling its financial practices, rivals have to follow those "best practices". But there are additional reasons for reform on this side of the pond, despite previous landmark reports on corporate governance by Sir Adrian Cadbury in 1992 and Sir Ronald Hampel in 1998.

Even though Britain has not suffered Enron-type scandals recently, major companies, notably Marconi and Cable & Wireless, have seen their share prices collapse, raising questions about proper financial reporting.

"Present measures are vital to the UK not necessarily on grounds of probity, but on grounds of performance and financial reporting of performance," said David Hunt, a director at Smith & Williamson, a financial services group. "Cadbury and Hampel stood us in good stead. That's why we've done relatively well, but we shouldn't stand still."

In the latest clean-up proposals, Patricia Hewitt, the trade and industry secretary yesterday announced plans for a new accountancy regulator to oversee guidelines laid out in two separate reviews into the accountancy industry.

Those reviews followed reports earlier this month by Derek Higgs and Sir Robert Smith aimed at improving, respectively, the effectiveness of non-executive directors and company audit committees. For its part, the financial services authority, the FSA, is about to publish guidelines on investment banking research. The thrust of government efforts is to avoid too rigid an approach that comes from too legalistic a mindset - as in the US.

The accountancy industry lobbied hard against such an approach and welcomed the government's light touch. For example, the government did not order a mandatory rotation of accountancy firms and their audit clients.

Advocates of forced rotation argue that an over-cozy relationship can lead to an auditor turning a blind eye to accounting abuse in order to lose a profitable business.

But one of yesterday's reviews called mandatory rotation a "blunt instrument" and settled simply for a recommendation for audit companies to be changed every five years. Ms Hewitt herself said there was no need to rush into its own equivalent to Sarbanes Oxley.

However, the DTI has ducked a crucial issue: should accounting firms also provide lucrative non-audit work such as market research and management consultancy for their audit clients? What Enron showed so starkly was that Arthur Andersen, the now defunct accountant, was making piles of money from the energy trader, on non-audit work, reinforcing their unhealthily close ties.

Ms Hewitt in effect failed to grasp that nettle, leaving it to the new regulator. Accountancy firms need more clarity on this key issue. Some audit committees on companies are moving towards their own guidelines, but others will just muddle through.

Still, UK firms appear to take seriously attempts to improve corporate behaviour as in the US. American investment banks, for example, are in serious discussions with consultancy firms such as Bluewave, to install software that would strengthen compliance procedures on conflict of interest between research and investment banking. In corporate governance at least, the UK is happily following in America's footsteps.