When markets soar and investors are making money, concern about corporate governance wanes. Come the crash, failures of stewardship are exposed and investors wake up again. Recent alleged frauds at Sino Forest and other Chinese companies listed in North America follow this pattern.

It might often be assumed that US markets are well policed and American governance is stronger than in emerging markets. But this is not so in relation to so-called foreign private issuers, which can claim exemptions on the basis of the laws of the country of incorporation, usually the Cayman Islands or the British Virgin Islands, where directors’ fiduciary duties are weak.

These offshore regimes may permit controlling shareholders to dilute outside investors with impunity. There may be no requirement to hold shareholder meetings. When ownership is via American depository shares it is difficult to exercise voting rights. And because the directors and assets of these companies are mainly outside the US, neither lawsuits nor the Securities and Exchange Commission’s rules are much help.