Corporate Governance in the West and the Rest of the World

The previous articles discussed how good corporate governance is imperative to the existence of a structured and functioning economy.

In this article, we look at the ways in corporate governance is practiced in the developed economies of the West and in the developing economies in the rest of the world. To start with, the ongoing global economic crisis has dispelled the notion that companies in the West are governed better.

Given the rather unending charade of CEO’s, Bankers and other corporate leaders being summoned by the SEC (Securities and Exchange Commission) in recent months over several irregularities, it would be a long shot to say that the companies in the west practice good corporate governance. Of course, there was a time when the companies in the West were looked upon as role models for good corporate governance and this was before the infamous Enron, WorldCom era.

On the other hand, companies in the rest of the world are governed in no better or no worse ways which means that effectively corporate governance across the world seems to be suffering from a crisis of trust and credibility.

If we take the former Tiger economies of South East Asia or the emerging economies of China and India and examine the way in which corporates in these countries are governed, it would be fair to say that most companies owe their growth to crony capitalism and quid pro-pro favors done with a desire to enrich one another at the expense of the average investor. This has been proved right in the aftermath of the Asian Financial Crisis in the late 1990’s and in recent months in India and China where several corporates were charged with duping the regulators.

Of course, one cannot paint all the companies with the same brush and there are exemplary examples of companies that have practiced good corporate governance in the West as well as the rest of the world.

The point here is that there are bad apples in the system everywhere and hence one cannot tar the entire system. However, it also needs to be noted that going by the present trends, there is a serious lack of credibility and accountability as well as issues related to transparency which need to be addressed if we are to have good corporate governance. Unfortunately, most companies seem to be aping each other in the way they dupe the regulators and this is a bad trend indeed.

Hence, the need of the hour is a voluntary mindset change as well as some form of regulatory control and oversight which would restore the art of corporate governance to its pristine status.

In other words, it is time for the corporate entities in all countries to take a hard look at what they are doing and change course.

It is also time for the regulators to enforce the existing laws and regulations so that malfeasance and deviance from established norms are punished and effective corporate governance is practiced.