11THE CONVERGENCE OF INTERNATIONAL CORPORATE GOVERNANCE SYSTEMS
THE CONVERGENCE OF INTERNATIONAL CORPORATE GOVERNANCE SYSTEMS
The convergence of International corporate governance
Convergence of international corporate governance business examples.
In most international countries, it can be argued that a host of legal and economic events can be said to be the milestones of a process that is convergence (Clark and Wójcik 2007 68). Some of the economic happenings such as the public offering of some well-known global companies like the Deutsche Telekom that has long been a public utility service is one of the reasons why the issue of investors and shareholder value has been much of debate recently. In other words, such happenings acted as the turning point in some of international corporate governance (Khanna Kogan and Palepu 2006 68). Additionally, there has been an increasing number of mergers and takeovers around the globe which has forced so many companies to design their structure based on the host countries law and regulations but most of them still adhere to the Anglo-American standards such as compensation and disclosure policy. For instance, Air Lingus is reportedly a target of 1.4 billion Euros from the International Airline Group which is basically acknowledged as the parent of the British Airways and Iberia. It is also known that WhatsApp and Facebook merged in a business deal that was worth 19 billion dollars (Clarke 2007 45). Because of the global nature of this mergers and takeovers companies, they are left with no otherwise but to inject an American-style kind of business in the host country. (Clarke 2007 45).
Coca-Cola Company is one of the companies that are committed to corporate governance because it promotes long-term shareholder interests, and strengthens the board while in the process encouraging management accountability that assists in building the trust of the public in the company (Aguilera and Cuervo‐Cazurra 2009, 380). In this aspect, the board is appointed by the shareholders to try and safeguard their interests and the overall financial success of the business. The established board of directors have ensured that they have set up a corporate governance guidelines in place that ensure the effective governance of Coca-Cola Company. Additionally, the corporate governance of Coca-Cola revolve around the Bylaws, the Company’s certificate of incorporation, corporate governance Guidelines, the charters for each committee of the Board, the business codes of conduct and information and guidance on how to place reports about the company (Khanna Kogan and Palepu 2006 89).In this case, it is therefore right to argue that most of the global companies are now converging towards the Anglo-American system of governance that is driven by making high net revenues and protection of the investors and the shareholder’s interests
ITC is another company that embrace corporate governance in its business. In so doing, it has been able to evolve from a single product business company to a multi-business corporation (Clarke 2007 46).Additionally, its diverse businesses revolve around a fast moving consumer products such as branded packaged goods, cigarettes ,lifestyle apparel, cigars, education and stationary goods, personal care products and agarbattis. It also engages in a number of business such as hotels, agribusiness, specialty papers, and informational and technology (Clarke 2007 45). However, all this business varies from one another which brings in the challenge of choosing the most appropriate model for ITC ITC(Clarke 2007 45). .In the process, ITC has established a strategy that strengthens two from of principles of international corporate governance that revolve around; First the management should strive to drive the business forward without any restraints .Second, the management freedom should be performed and conducted within a framework of efficient accountability. In this case, it can be argued that most businesses are finding the Anglo-American model of corporate governance a more effective model especially when it comes to top management. It is important therefore to note that, in every business operations, it is crucial for the directors to perform their functions and roles in a more effective manner which is basically protecting the rights and interests of the shareholders, In other words, the Anglo-American market centered system is one of the few models that international corporation’s finds it easier to comprehend and adopt.
In the United States, corporate governance became a very crucial issue after the introduction of the Sarbanes-Oxley Act in the year 2002 which was basically put in place to restore the confidence of the public after a number of accounting frauds in high profile U.S companies like WorldCom and Enron (Clarke 2007 46). This clearly indicates that in the modern world, it is not just safe and enough for a company to realize high net revenues, but they must as well try as much as possible to exercise high level of corporate governance through ethical behaviour, environmental sustainability coupled with sound corporate governance that will ensure that their remain corporate to their citizens. Thus indicating clearly that international corporate governance is converging toward the Anglo-American market centered system.
The stepping down of Apple-Google smartphone board chairman has made the smartphone industry to embrace an ink of what corporate governance really means at industry level (Walter 2008 45). Previously, the smartphone industry board has been comprising of a membership that consists of interlocking and cozy directorship which can be classified as collusion in other industries. But because of the increase in the government regulations and scrutiny which results in the conflict of interests between the associated parties, the smartphone industry has decided to move towards corporate governance (Aguilera and Cuervo‐Cazurra 2009, 380). As a result, the smartphone industry requires each and every smartphone firm such as Apple, Google Inc., Samsung and Windows to have a board of directors and managers that will be able to protect and safeguard the interests of the investors and stakeholders. For instance, after the resignation of the Apple –Google CEO which resulted to the establishment of a board based on corporate government principles, the Apple-Google shares has started improving and moving higher. In simple terms, this new form of corporate governance can be said to be closely interlinked with the Anglo-American governance. However, as much as the new regulations and company structures were embedded in the top management of each smart[phone industry, it can be said that this did not do much to change their overall brand and marketing strategies that have made them to establish a better reputation with their customers.
Using the market level, statistics have clearly indicated an increase in the number of listed public companies and shareholders since the mid-1990s. Besides, the level of capitalization has also been shown to be on the increase. Some of the recent examples of publicly listed companies include the Bombardier Inc. Rolls Royce Holdings Plc, and San fang Chemical industry Co., Ltd. In this case, it is wise to argue that the percentage of the international countries holding stocks in corporations that are publicly traded has doubled in a span of a decade which indicates an increase in the market ration of capitalization to Gross Domestic Product (Aguilera and Jackson 2010 500). Moreover, there have been some companies such as the Germany Neuer market that have been set up to offer competition to other publicly traded companies which means that international corporate governance is moving toward the Anglo-American market-centered approach. In other words, this facts and statistics indicate growth and development of international corporate governance on both the demand and the supply side far beyond the ancient market situations which is a further proof that the international corporate governance us converging towards Anglo-American system of governance.
Perhaps a clear indicator that is something is changing in international corporate governance is the fact that some of international and well-established companies are currently being discussed in the international markets
markets(Jamali Safieddine and Rabbath 450). In this case, critical and significant features such as the structure of the business boards and the co-determination of systems are currently under scrutiny in the international market. Consequently, some of the discussions so far have been very cautious (Khanna Kogan and Palepu 2006 69). However, it is important to note that corporate governance practices that initially had never been debated or rather called into question over the previous decades are now the focus of policy makers and researchers. As a result, the mid-1990s witnessed some legal initiatives that revolve round corporate governance being established. For instance, in the international market, there was the establishment of the Securities Trading Act 1994 and the takeover Code of 1995.However, the question that arises is that, are these legal initiatives strong enough to conclude that the international counties are converging and changing towards Anglo-American model? In this perspective it can be said that international corporate governance is slowly moving the direction of the Anglo-American model.
Government and corporate governance examples
Considering some recent government examples, the United States government has allowed foreign influences because they believe it is one way that will result into successful diversification of business strategies and concepts. For instance they have permitted some of their companies like MacDonald to be managed by foreigners such as Australian Charles Bell (Khanna Kogan and Palepu 2006 90). Additionally, U.S encourages the quality of accounting in realizing economic transactions. In the case, the quality of accounting is one of the most significant element both economically and statistically in the sense that a high degree of accounting quality is interconnected with reduced sensitivity of the invested cash flow something that Japan does not really embrace (Claessens 2006 93). Furthermore, in Nigeria, the Central Bank has witnessed some unwholesome practices that are conducted by the top management of many company’s top management and at times this happenings are done with the collusion and connivance of the company board that are in most cases found to be detrimental to other stakeholders interests in the company (Jamali Safieddine and Rabbath 2008 450). For instance, the large scale loans that are given to the management directors, major shareholders and their relations with the company which at the end of the day makes the company to be non-performing and in the process, impair the company operations (Walter 2008 63). The situation in Nigeria is a clear indicator that if where the directors are involved in the collusion of an activity that impacts the organization negatively, then it is very hard to deal with the situation and protect other stakeholders (Walter 2008 63). As a result, the government of Nigeria has taken the responsibility and postulated that the director of any company will be held accountable for any problems associated with the management since they must try as much as possible to live up to their responsibility which is basically protecting the interests of the investors and stakeholders.stakeholders. In simple terms, this is one way the Anglo-American system of corporate governance is expanding and deepening its roots in other international corporate governance practices.
The issue of Anglo-American corporate governance system can be attributed to the emergence of the strong banking and financial systems in the international markets which originally never existed most especially on issues regarding holding of the company shares outside the banking or financial sector (Jamali Safieddine and Rabbath 2008 450). For instance, the Great Britain is one of the few countries that are universally recognized as a county with the great presence in the European Union because of its recognition of the London financial market in which so many national and publicly traded companies are listed (Clarke 2007 195). In other words, since most of its model of governance are dominated by the implications and effect of external capital markets, then there is no doubt that a system like that of Great Britain has no choice but to converge to the Anglo-American system which requires an independent board that will ensure that management is controlled and monitored so as to improve the performance of the organization as well as its recovery
(Walter 2008 65). Another notable example is the fact that Infosys was ranked the best company in India that has best corporate governance practices because it works very hard to inspire confidence among shareholders, investors and other financial backers by embracing a sound corporate governance (Walter 2008 65). In other words, Infosys was recognized because of its potential and capability of growing in international and global footprint, controlling costs and increasing its level of profitability at the same time. In simple terms, Infosys can be argued to have developed a strategy of balancing the interests of its shareholders, investors, suppliers, customers, financiers, community and the government as well (Walter 2008 66).The high ranking and prominence that Infosys has received is one of the ways in which international corporate governance is converging towards the Anglo-American model.
Organizational level examples
Several banking systems like Bank Audi and MFW have taken time to clarify the roles of the management and the board as part of their corporate governance and organizational strategy. Additionally, this was an important step for Bank Audi since it was transitioning from being owner-controlled to another form of leadership (Aguilera and Cuervo‐Cazurra 2009, 380). Apparently, the division between management and the board was blurred with the chairman of the board who was making decisions at the management level. For instance, in order to transition the chairman of the board from the management role, Bank Audi just like Butec bank, established a Management Executive Committee and in the process defined clear terms in which most board members will refer to between the board and the committee.committee. The restructuring of the banking system of Audi and Butec bank to meet and protect the interest of the shareholders and the investors by making the top management to work independently from the shareholders is one great example of how the modern international corporate governance is converging to the Anglo-American model. Although they did not completely structure their organizational structure completely, it can be argued that they prefer the Anglo-American system because of its profitability level and the way it protects the interest of the shareholders.
The corporate governance in most Indian multinational corporations has by large been in operating in accordance with the international corporate governance practices. In other words, the corporate governance techniques and mechanisms for most organizations in India are enumerated in the enactments that revolves around the Anglo-American market centered approach. For instance, the Companies Act that was set up in the year 2013 possess a number of provisions that revolve around the organizational structure of companies such as board meetings, board constitution, independent directors, audit committees, general meetings and board processes. One important attribute is the fact that this new approach replaced the old Companies Act 1956 which is a clear indication that most international corporate governance are moving towards the Anglo-American market centered system.insystem. In simple terms, this act postulates the organizational structure of the board to be made up of Remuneration and nomination committee, Stakeholders relationship committee, committee of social corporate responsibility and the Audit committee (Walter 2008 66). As a result, a number of organizations such as deloitte have been established to emphasize on the issue of corporate governance more specifically to enforce the attributes and characteristics embedded in the Anglo-American system of governance. In other words, this is a clear indicator that the international corporate governance is converging towards the Anglo-American market centered system..
Aguilera, R.V. and Cuervo‐Cazurra, A., 2009. Codes of good governance. Corporate governance: an international review, 17(3), pp.376-387.
Aguilera, R.V. and Jackson, G., 2010. Comparative and international corporate governance. The Academy of Management Annals, 4(1), pp.485-556.
Claessens, S., 2006. Corporate governance and development. The World Bank Research Observer, 21(1), pp.91-122.
Clark, G.L. and Wójcik, D., 2007. The geography of finance: corporate governance in the global marketplace. OUP Catalogue.
Clarke, T., 2007. International corporate governance: A comparative approach. Routledge.
Jamali, D., Safieddine, A.M. and Rabbath, M., 2008. Corporate governance and corporate social responsibility synergies and interrelationships. Corporate Governance: An International Review, 16(5), pp.443-459.
Khanna, T., Kogan, J. and Palepu, K., 2006. Globalization and similarities in corporate governance: A cross-country analysis. Review of Economics and Statistics, 88(1), pp.69-90.
Walter, A., 2008. Governing finance: East Asia’s adoption of international standards. Cornell University Press.