Who needs Dodd-Frank to keep on the right path? Not PepsiCo. People don't want businesses they can trust because they have been 'made safe' with regulation. They want businesses they can trust because they are trustworthy.

• Author: Nooyi, Indra
• Position: KEYNOTE - Company overview

The Weinberg Center was established just as the issue of corporate governance gained new significance and resonance following the collapse of some big business players. Back then, the collapse was due to accounting fraud driven by a focus on short-term thinking and high-risk behavior.

But now, we stand in the shadow of an even bigger crisis, one that led to an almost complete collapse of the financial system. So the questions that we have to ask ourselves today are these: Why did we not learn enough from the last crisis to prevent this one? Why did the Sarbanes-Oxley regulation not prevent this? And have we learned any hard lessons from this crisis that will prevent the next one?

It's not all about regulation

Let's take the matter of regulation first. At PepsiCo, we don't think of regulation as a barrier to our work. Of course, bad regulation can be obtrusive. But good regulation ensures that the rules of the road are followed by all the drivers. And if you're a good driver, that makes life easier. It's also true that in the aftermath of a terrible financial crisis policymakers do need to act. They need to show they are not asleep at. the wheel. Action is needed to restore confidence.

The response to the accounting scandals a decade ago came with the Sarbanes-Oxley Act. The Act was accused of being too complex, too much of a burden, regulating all the wrong people, at great expense of both time and money. You know the debate very well. But it seems like we are having it again--whether we want to or not--only this time it is regarding Dodd-Frank.

I am sure I'm not the only one who is tired of the cycle of scandal followed by regulation that we seem destined to repeat every few years. The Dodd-Frank debate today has a disheartening echo of Sarbanes-Oxley a decade ago.

I don't doubt that something had to be done. Confidence in the integrity of capital markets was at a low ebb. There was no way that policy makers could just stand idly by.

I won't discuss the benefits and disadvantages of Dodd-Frank other than to make one important observation. The new law is over 2,000 pages long. Larry Thompson, former deputy attorney general and PepsiCo general counsel, pointed out to me recently that one major law firm published a 117-page "summary" of the Act. He also noted that the Act "requires 243 rulemakings and 67 studies" to be conducted by almost a dozen different agencies. We have to ask ourselves: Is this really proportionate? Does this complexity help anyone? Does it make companies "better" somehow?

This is the vital point. We cannot regulate ourselves into "better" business behavior. Regulatory complexity doesn't suddenly make people more trustworthy and create impulses to do good. In short, we in the corporate world cannot look to regulation to encourage--or even ensure--good behavior.

Look inward

That brings me to my second point. I wholeheartedly believe that the only effective way of improving corporate governance is by improving corporate culture. This has to come from within, from the way we conduct ourselves. Businesses cannot keep looking to their regulatory environment to dictate their behavior. They have to look inward--to their moral compass.

Tough regulation, financial penalties, even criminal charges all have their place. Wrongdoing has to be punished, of course. But none of these sanctions will be as consistently effective as a strong moral compass and a company's own ethical frame- work. This means changing our cultural norms...