For the past decade, many European business leaders found much to admire in a U.S. business model that seemed to deliver big profits and high shareholder value. But corporate America's image has recently been tarnished by a succession of accounting scandals, and the Europeans are now wondering whether their confidence in the U.S. model was misplaced.
First came the bankruptcy of energy trader Enron, which revealed late last year that it had overstated earnings by hundreds of millions of dollars. Last month, the U.S. phone company WorldCom admitted it had misstated its expenses by almost $4 billion.
They are only the most dramatic cases. Several other big U.S. companies have acknowledged using improper accounting practices. Thousands of workers have been laid off, and share values in the affected firms have dropped to a small fraction of what they used to be.
The catalogue of corporate catastrophes in the United States has eroded confidence among European business leaders in what they once saw as the model for openness and accountability. Some say they do not want to invest in the United States until it cleans up its act.
For years, executives in Europe have admired the so-called American model because of its emphasis on free-for-all competition, aggressive deal-making, a high level of public disclosure and huge pay rewards for top corporate officers.
Gerard Walsh, an analyst with the Economist Intelligence Unit, a research institute in London, likens the atmosphere in the United States to a hangover.
"It is a bit like the morning after the night before. During the boom years, when stock markets were increasing very, very rapidly in the U.S., it actually gave a certain amount of leeway to what companies did and how they cooked their books," he said. "Now that stock markets are in decline, some of these things are coming home to roost."
In today's globalized economy, European markets are not immune to the U.S. corporate scandals and the drop in share prices on Wall Street. The fear in Europe is that many more companies, to use Mr. Walsh's phraseology, may be guilty of cooking the books.
To be sure, Europe has its own financial scandals. Vivendi Universal, a French-owned conglomerate, and Deutsche Telekom, Germany's biggest phone company, are currently under fire from their shareholders for using questionable accounting methods and incurring too much debt.
Most experts agree that, on both sides of the Atlantic, the problem is not with management principles but with managers who are determined to distort their companies' financial results.
European executives, though, are beginning to criticize American accounting standards as being too complex and too easy to manipulate. The chief investment officer at Dresdner Investment Trust in Frankfurt, Wolfram Gerdes, says the American standards allow companies to comply to the letter but not the spirit of the rules.
"The U.S. had actually been considered the safer place, the premium, the leader," he said. "And basically, people have been looking at the U.S. for accounting leadership. And that premium is actually fading fairly rapidly."
Mr. Gerdes says the German car-maker Porsche, for instance, is thinking twice about listing its shares on Wall Street because it objects to U.S. disclosure regulations. Those rules require quarterly reporting by companies, a practice Porsche executives say would hold them hostage to short-term goals.
There is also unease in Europe about the culture of executive enrichment that exists in the United States, where tens of millions of dollars are paid to executives, even for those who fail their companies and their shareholders.
A survey last month by the Gallup organization found that only 32 percent of European investors now rank the United States as the world's most attractive market. But there are few other places they can put their money. European economic growth is expected to remain slower than U.S. growth for the foreseeable future. Japan remains moribund. And other markets are seen as being fraught with risks.