Professional Documents
Culture Documents
Convergence of CG
Convergence of CG
Convergence of Corporate
Governance Systems
• The corporate law has already achieved some
form of convergence by the end of 19th
century
• This commonalities were achieved despite the
wide difference in the approaches of various
countries in JSC
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22-02-2015
Characteristic of Corporations in 20th
century
Limited liability
Transferability
Legal personality
Perpetual entity
Central management
• The modern corporation show further
convergence who controls the corporation –
shareholders
• Governance model which focuses on
Shareholder is known as standard model
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Convergence
There are three principal factors driving
consensus on the standard model:
• the failure of alternative models;
• the competitive pressures of global commerce;
• the shift of interest group influence in favor of
an emerging shareholder class
Failure of Alternative Models
• Manager‐oriented model‐ in 50s and 60 s in USA
• Labor‐oriented model‐ Germany to Europe ‐ Fifth
Directive on Company Law
• State‐oriented model‐ role for government‐
France & Japan
• Stakeholder Model – Combination of Manager
and Labor oriented Models – 2 approaches –
Board as fiduciary‐ Representative board
• Focus on Shareholder oriented model
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COMPETITIVE PRESSURES TOWARD
CONVERGENCE
Three ways in which standard model of
corporate governance recognized as
competitively superior:
• by force of logic,
• by force of example,
• by force of competition.
The Force of Logic
• The interests of equity investors in the firm ‐‐ the
firm’s residual claimants ‐‐ cannot be adequately
protected by contract. To protect their interests,
they must be given the right to control the firm.
• Only if the control rights granted to the firm’s
equity holders are exclusive and strong, they will
have powerful incentives to maximize the value
of the firm.
• The interests of participants in the firm other
than shareholders can generally be adequately
protected by contract and regulation
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The Force of Example
• Standard Model economies perform well
compared with other models
The Force of Competition
Standard Model has certain competitive
advantage to grow globally
• access to equity capital at lower cost
• Stronger incentives to reorganize along lines
that are managerially coherent,
• More rapid abandonment of inefficient
investment
• The other models also have advantages
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RISE OF SHAREHOLDER CLASS
Shareholders have become very powerful
because of 2 reasons
1. Diffusion of Equity Ownership
2. Shift in Balance Toward Public Shareholders
CONVERGENCE OF GOVERNANCE
PRACTICES
• Convergence will not happen easily – Will first
happen in the practices – followed by legal
convergence
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22-02-2015
Legal Convergence
• Where the convergence is happening ?
• Board Structure
• Disclosure and Capital Market Regulation –
regulatory bodies, A/C Standards
• Shareholders suits – relaxing norms in Japan
and other countries
• Takeovers
• Judicial Discretion
Convergence may not happen
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Structure‐Driven Path Dependence
Path Dependence of the Efficient Structure
• 1. Sunk adaptive Costs
• 2. Complementarities
• 3. Network externalities
• 4. Endowment effects
• 5. Multiple optima
Structure‐Driven Path Dependence
Persistence of Existing Structures Due to Rent‐
Seeking
• 1. Persistence of concentrated ownership
• 2. Persistence of diffuse ownership
• 3. Persistence of German codetermination
• 4. Persistence in the face of globalization
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Rule‐Driven Path Dependence
Path Dependence of the Efficient Rules
• Sunk costs and complementarities
• Multiple optima
OTHER BASES FOR PERSISTENT
DIVERGENCE
• Differences of Opinion
• Differences in Firms and Markets
• Differences in Culture, Ideology, and Politics