2 Global is at Ion and Cg

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Globalization andcorporate governance


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Introduction

Corporate governance involves anetwork of relationships betweencorporate managers, directors, and

providers of equityor more broadly,the relationship of the corporation tostakeholders and society.

In both these respects corporategovernance is undergoingtransformation around the world.


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National Differences

Nations permit corporations to form for different reasons andhave different answers to the question For whom is thecorporation governed?

Thus the basic objective of corporations may vary. Butwhatever the objective, effective governance ensures that

boards and managers are held accountable for pursuing it.

Some nations focus on the need to satisfy societalexpectations and, in particular, the interests of employeesand other stakeholders . This view predominates incontinental Europe (particularly Germany, France, and the

Netherlands) and in certain countries in Asia.

Other countries emphasize the primacy of property rights, andfocus the corporate objective on returning a profit to theowners over the long term.


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Anglo American Model

The liberal model that is common in Anglo-American countries tendsto give priority to the interests of shareholders.

The coordinated model that one finds in Continental Europe andJapan also recognizes the interests of workers, managers, suppliers,customers, and the community.

Each model has its own distinct competitive advantage.

The liberal model of corporate governance encourages radicalinnovation and cost competition, whereas the coordinated model ofcorporate governance facilitates incremental innovation and qualitycompetition. However, there are important differences between theU.S. recent approach to governance issues and what has happenedin the UK.

In the United States, a corporation is governed by a board of

directors, which has the power to choose an executive officer,usually known as the chief executive officer. The CEO has broadpower to manage the corporation on a daily basis, but needs to getboard approval for certain major actions, such as hiring his/herimmediate subordinates, raising money, acquiring another company,major capital expansions, or other expensive projects. Other dutiesof the board may include policy setting, decision making, monitoringmanagement's performance, or corporate control.
http://en.wikipedia.org/wiki/Board_of_directorshttp://en.wikipedia.org/wiki/Board_of_directorshttp://en.wikipedia.org/wiki/CEOhttp://en.wikipedia.org/wiki/CEOhttp://en.wikipedia.org/wiki/Board_of_directorshttp://en.wikipedia.org/wiki/Board_of_directors


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Importance Of CorporateGovernance

No matter what view of the corporate objective istaken, effective governance ensures that boards andmanagers are accountable for pursuing it. Effectivecorporate governance:

promotes the efficient use of resources both within thecompany and the larger economy

helps ensure that the company is in compliance with thelaws, regulations, and expectations of society

provides managers with oversight of their use ofcorporate assets

supports efforts to reduce corruption in business

dealings, and assists companies (and economies) in attracting lower-

cost investment capital by improving both domestic andinternational investor confidence that assets will beused as agreed (whether that investment is in the form

of debt or equity).


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Multi-Jurisdictional Dimension

Corporate governance practices vary across nations and individual companies. Thisvariety reflects not only distinct societal values, but also different ownershipstructures, business circumstances, and competitive conditions.

It also reflects differences in the strength and enforceability of contracts, the politicalstanding of shareholders and debt holders, and the development and enforcementcapacity of legal systems.

In developed countries, the discussion on how to improve corporate governancetends to assume that the following are in place:

well-developed and well-regulated securities markets

laws that recognize shareholders as the legitimate owners of the corporation andrequire the equitable treatment of minority and foreign shareholders

enforcement mechanisms through which these shareholder rights can be protected

strong corporate disclosure requirements

securities, corporate, and bankruptcy laws that enable corporations to transform (tomerge, acquire, divest, and downsize) and even to fail

anti-corruption laws to prevent bribery and protections against fraud on investors

sophisticated courts and regulators

an experienced accounting and auditing sector.


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In addition to differences in the developmentof legal and regulatory systems and private

institutional capacity, nations differ widely inthe cultural values that mold the developmentof their financial infrastructure and corporategovernance.

Although capital market pressures are drivingsome convergence on common governanceprinciples, international agreement on asingle model of corporate governance or asingle set of detailed governance rules is

both unlikely and unnecessary. Even among fairly similar systems like those

of the U.S. and U.K., fundamentaldistinctions remain that are unlikely to be

resolved.


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International, Regional and PrivateSector Codes Numerous private sector and government

related organizations, institutional investors,and stock markets have, in the past decade,become active in driving corporate

governance reforms. One of their most influential efforts has been

to issue guidelines (also called principles,policies, recommendations, or codes of best

practice). Adapted to their respective culturesand business structures, these guidelinesand codes generally promote practicesdesigned to enhance accountability toshareholders, improve board independence,and foster corporate responsibility.


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Asia

A newly formed network of institutes ofdirectors in East Asia convened in Cebu,Phillipines, in November 2000.

The goal of IDEA.net is to build regionalcooperation among director institutes oncorporate governance issues.

IDEA.net has reported involvement from 10East Asian countries. Its next plenary sessionwas in November 2001.

The group does not yet have a web site, butmay becontacted via the Institute of Corporate

Directors in the Phillipines (www.icd.ph).


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India

In concert with its continuing progress asan industrialized nation, India has a gooddeal of governance activity.

Securities and Exchange Board of India(SEBI) Committee on CorporateGovernance (Kumar MangalamCommittee),Draft Report on Corporate

Governance(September 1999).www.sebi.gov.in Confederation of Indian

Industry,Desirable Corporate

Governance

A Code (April 1998)[email protected]
http://www.sebi.gov.in/http://www.sebi.gov.in/


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2 Global is at Ion and Cg

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