Corporate Governance

Corporate governance is a hotly contested issue of late. With the global economy still reeling from the 2008 financial crisis many have tried to answer the question what can prevent this from happening again? Better corporate governance has been proposed as a piece of the solution.

Corporate governance is an encompassing term that refers to the system by which corporations are directed and controlled. Within this there are many different ways to govern corporations and depending on a variety of factors, companies will differ in their structures. This is apparent when looking across cultures around the world. One of the most overarching differences is between the western way of corporate governance in comparison to emerging economies. More developed markets tend to practice "shareholder capitalism" where stock in companies are held by a wide array or shareholders with diverse interests. In contrast to this, emerging markets tend to have tighter, more family oriented shareholders of smaller numbers. Theories have contributed this difference to the strength of the rule of law. The stronger a country’s legal environment the more likely they may be to practice shareholder capitalism because shareholders believe that they are protected.

As globalization in the world continues to accelerate and international corporations expand their reach, there has been a slow trend to converging corporate governance standards. In 2001 Argentina and China, who have more family controlled corporate governance oversight than the west, instituted new reforms strengthening their regulatory frameworks. Argentina incorporated reforms from the Organisation for Economic Co-operation and Development (OECD) showing a move towards a more western style of corporate governance. As companies continue to move into new parts of the world they naturally take their management styles with them. In the future differences that currently exist are bound to dissipate. However, cultures still remain diverse and not everything is subject to change.