Need for a Uniform International Corporate Governance Code
With the globalization of the world economy starting in the 1970s, continuing through the 1980s and accelerating since the 1990s reaching its zenith in the first decade of the new millennium, there has been a concomitant trend of global corporations expanding their international footprint and operating in multiple countries around the world.
This meant that they had to deal with a maze of regulations and laws and procedures, which were different in each country, as well as being unique to each country.
Further, with the codes of corporate governance in the West (especially the United States and Europe) being deep, structured, and comprehensive, compared to those elsewhere, which were still in the process of evolving, the situation was such that global corporations had to do with dealing with different yardsticks in regional and country specific terms.
If this were the only imperative, then investors, activists, and regulators would not have bothered since this was the domain of the global corporations and something, which they could handle.
However, given the fact that bribery and corruption are rampant in the Third World meant that global corporations could truthfully assert that they were not breaking any laws as far as their home countries and their rules were concerned. Instead, could resort to underhand dealing in the rest of either the world where corporate governance was yet to be evolved or the regulation lax.
This situation was compounded by the fact that there were many corporate scandals in the last two decades arising out of corporate mis-governance and malfeasance from companies such as Enron, Parmalat, WorldCom, and the recent instances of dubious practices that were revealed in the aftermath of the Great Recession of 2008.
These placed the spotlight squarely on the activities of the global corporations around the world, which led to calls from regulators and activists of the need for global corporations to be brought under the ambit of a uniform and consistent corporate governance standard around the world.
For instance, it is the practice in Germany to have representatives from the labor unions on the boards of corporations. Moreover, in many Asian countries, it is the practice for family members and relatives of the owners of the firms that are family owned to find places in the boards. Apart from that, in China, it is the law that officials from the Communist Party be made members of the boards. Therefore, taken together these examples point to the difficulty of having a uniform code of corporate governance that is applicable internationally.
Having said that, it must also be noted that unless global corporations are regulated by an international code of corporate governance, they are more likely to succumb to the temptation to cut corners in those areas of the globe where regulation is weak. In addition, they would have to comply with purely local rules and regulations that might impede their smooth operation.
Apart from this, the increasing incidence of corporate scandals means that the shareholders stand to lose the most in addition to the broader societal stakeholders and hence, there is indeed a need to make the global corporations adhere and conform to the same standards that they follow back home. Therefore, as mentioned earlier, this article argues that there is indeed a case to make for an international code of corporate governance despite the difficulties of actualizing it in practice.
This means that global corporations while thinking globally have to act locally which when taken together means that they must be Glocal in their approach, which is another theme that runs concurrent to the main themes in this article.
This can be applied to the international code of corporate governance wherein global corporations are made to observe those rules and regulations that are global in nature, adapt, and adjust to the local rules and regulations in a Glocal manner thereby increasing the viability of an international code (Wharton.edu, 2014).
To take the example of Fidelity International or Vanguard investments that are increasingly diversifying out of the US stocks into international companies, they must be reassured that the companies that they are investing in are reasonably and relatively well governed when compared to the corporations in the United States and Europe.
This means that their equity investment strategies must focus on the accounting standards in various countries in which they are investing. These must be complaint with the provisions of corporate governance codes such as Sarbanes-Oxley, Cadbury rules, OECD (Organization of Economic Cooperation and Development) guidelines, the ICGN (International Corporate Governance Network) which are some of the global regulatory codes that would be discussed in this article.
The central focus of corporate governance in any country is on the board of directors and the structure of the corporate board. Therefore, when international investors invest in say, a company in Italy or Lithuania, they must be convinced that the respective boards are in conformance with global corporate governance codes. This makes the case for an international code of governance that much stronger.
However, as mentioned earlier, the specific rules in place in many countries around the world makes it more difficult for uniform application of corporate governance that follows the Sarbanes-Oxley guidelines of reporting and disclosure which means that the move towards an international code of governance would run into difficulties.
In other words, just as globalization ensures a creative dialogue between East and West and arrives at a meeting point, similarly, corporates around the world can make strides towards actualization of global norms adapted to local conditions that can result in a win-win situation for both.
Ultimately, the driving force for any international code has to come from the borderless attributes of global capital that seeks the maximum returns for the lowest costs and emphasizes efficiency and productivity. In other words what this means is that by ensuring that markets do their best when confronted with a problem, capitalism can find a path forward that would solve the problem of differing standards of corporate governance around the world.
Further, in recent years, global investors too have veered around to the view that they might have to abide by different rules in different countries. Of course, the implicit assumption here is that as long as the rules do not change suddenly, they are fine with separate reporting, board structures, and laws related to shareholding and equity control.
The discussion so far has debated both sides of the issue as to whether an international code of corporate governance is viable. The key themes and the insights that have animated the discussion point to the fact that as long as there are different cultures, there tends to be diversity and hence, it is indeed the case that celebrating differences and actualizing homogeneity must go hand in hand.
Therefore, wherever possible there can be convergence in the adoption of uniform codes of governance and the differences can coexist with the agreements. This has been the case with other multilateral bodies such as the WTO (World Trade Organization) and the United Nations, which have been somewhat successful in respecting national sovereignty in the midst of global cooperation and coordination.
In concluding this article, it would be pertinent to note that the final argument being made in this article is that as long as the demands of global capital towards transparency and accountability being more profitable are concerned, individual differences related to local conditions can be co-opted and embraced within the ambit of an international code of corporate governance.
Therefore, without either ruling out the viability of such a code or insisting upon the adoption of the same, this article makes the point that letting the winds of the world breeze into the rooms without being swept off ones feet by them would be a good metaphor to describe how an international code of corporate governance would work in practice.
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Authorship/Referencing - About the Author(s)
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