Deck 7: An Introduction to Corporate Governance Systems Worldwide: Global Corporate Governance

Question 1

To what extent do you consider that the research into factors determining a country's corporate governance system is useful?
Are you persuaded that corporate ownership structure and countries' legal systems have been more relevant to the evolution of corporate governance in countries around the world than factors such as culture and politics?

Answer 1

This question encourages students to discuss the work of La Porta et al., which is probably the most well-known and respected work in the area of international corporate governance. Their main papers are summarized in this chapter. Before the class, students could be guided to reading at least one of the papers, probably focusing on La Porta et al. (1997, 1998 and 1999). Firstly, the students can ponder whether or not it matters that we know which factors determine a country's corporate governance system? Why is this a topic worth researching?
Does it matter whether the legal framework, or simply corporate ownership structure, or economic policy, or culture, or even religion are the main determinants of a country's system of corporate governance?
Does this research represent any more than an interesting academic exercise?
One answer may be that this type of research into international corporate governance systems is important as it provides an understanding of the workings of the capitalist systems around the world, which provides policy makers with the relevant framework for future policy decisions. For example, if culture is found to be a leading influence on corporate governance in a particular country, then policy makers can focus on cultural issues in developing corporate governance codes of practice. Similarly, if the legal framework is found from research to be the main restrictive influence on a country's potential for developing shareholder activism, then policy makers can focus on reforming company law in order to expand corporate governance policy in this area. This has certainly been the case for many countries around the world, which have codified legal structures. Changes in company law have been, in many countries, the main path to corporate governance reform. South Korea for example, has focused on reforming its Commercial Code in order to augment shareholder rights, especially in the area of voting. Other countries, such as the UK, have been able to rely more on voluntary codes of practice as shareholder protection is greater. La Porta et al. have consistently alluded to the argument that countries with legal systems which afford a greater level of shareholder protection are also characterized by larger, more extensive, more active stock markets.

Question 2

Do you think that the insider-outsider framework is a useful basis for analysing and discussing corporate governances systems in an international context?

Answer 2

Students can use this question to open a discussion about corporate ownership, comparing different ownership patterns around the world, such as pyramidal structures (Germany, for example), bank ownership (Japan, traditionally), institutional ownership (UK), family ownership (South Korea, Italy, for example), state influence (Poland, France, for example). These structures can then be related to different forms of corporate governance ranging between the two extremes of insider- and outsider-oriented system. The patterns emerge naturally on examination. Students may be encouraged to download information from the Internet about the corporate governance system and codes of practice for any country in the world and bring it to the class session. If each student is allocated a different country this provides an excellent basis for discussion and comparison of systems and structures. The International Corporate Governance Network website (ICGN) is probably on of the best sites which provides linkages to countries' codes of practice. Also, the World Bank website provides a huge range of information on corporate governance in countries around the world and provides access to a wide array of reports on corporate governance and the extent to which countries are complying with codes of practice.

Question 3

A global convergence in corporate governance is underway. In a few years there will be one internationally acceptable model of corporate governance which will be based on the US market-based, outsider-type system. Do you agree with the above statement? Support you view with a discussion and refer to appropriate academic work and other published sources that you have read.

Answer 3

Again, the discussion here may be based on students' opinions arising from an extensive discussion of corporate governance in a variety of countries around the world. There is a discussion of convergence in corporate governance in the book. The literature suggests two possible standpoints. First, the 'against' view, championed by Colin Mayer, who considers that corporate governance convergence is not advisable, as it is better for global economics to maintain different systems in order to encourage competition and diversity. However, in practice, it seems the 'for' arguments are winning the battle. Institutionally, global guidelines for corporate governance best practice, such as those by the OECD and ICGN, have promoted corporate governance convergence for a range of reasons. Probably one of the best discussions of the rationale for promoting global corporate governance convergence may be found in the introduction to the OECD guidelines (available on the Internet). The rationale is based on the following: the need for institutional investors seeking cross-border investments to be able to compare companies internationally on the basis of their systems of corporate governance; the need for greater transparency (comparable, standardized accounting, for example); the need for comparable ethical standards in corporations around the world. Other reasons are provided but these are probably the main ones. Clearly, for reputational purposes, companies need to demonstrate that they have internationally comparable standards of corporate governance if they want to transcend from the domestic to the global environment. Domination by a US-based model of governance is less and less likely or acceptable as time passes, with countries working hard to develop their own idiosyncratic versions and codes of governance that are more fitting and applicable to their culture, political environment, economy, religion and structure of corporate ownership.

Question 4

Read the latest version of the OECD Principles. To what extent do you consider these can be applied in any country around the world?