Underlying the energy of advancing equity markets and the apparent variety of the corporate governance guidelines and policy documents appearing in such profusion over the last decade is an implicit but confident sense that an optimal corporate governance model is indeed emerging, i. e. ,
An optimal model with dispersed ownership and shareholder foci. The OECD and World Bank promote corporate governance reform influenced by financial Economists and are generally promoting market capitalism with a law matters approach, although for political reasons, they do not advocate too strongly market capitalism and allow for other corporate governance systems (i. e. concentrated ownership). (Pinto 2005, ).
Other authorities are less diplomatic in announcing the superiority of the Anglo- American approach that other systems must inevitably converge towards. In an article prophetically entitled The End of History for Corporate Law, two eminent.
US law school professors, Hans mann and Brakeman (2001), lead the charge of the convergence determinists:
Despite very real differences in the corporate systems, the deeper tendency is towards convergence, as it has been since the nineteenth century. The core legal features of the corporate form were already well established in advanced jurisdictions 100 years ago, at the turn of the twentieth century. Although there remained considerable room for variation in governance practices and in the fine structure of corporate law throughout the twentieth century, the pressures for further convergence are now rapidly growing. Chief among these pressures is the recent dominance of a shareholder-centered ideology of corporate law among the business, government and legal entities in key commercial jurisdictions. There is no longer any serious competitor to the view that corporate law should principally strive to increase long-term shareholder value. This emergent consensus has already profoundly affected corporate governance practices throughout the world. It is only a matter of time before its influence is felt in the reform of corporate law as well.
The irony of this profoundly ideological claim (the most recent in a long historical lineage of similar appeals) is that it attempts to enforce the consensus it claims exists, by crowding out any possibility of alternatives. This is not an isolated example, but the dominant approach of much legal and financial discussion in the United States, whereas McDonnell (2002) insists the prevailing view is:
The American system works better and that the other countries are in the process of converging to the American system. Though there is some dissent from this position, the main debate has been over why countries outside the United States have persisted for so long in their benighted systems and what form their convergence to the American way will take. The scholarly discussion has converged too quickly on the convergence answer.
It is worth asking by what standards or criteria a system of corporate governance may be defined as “optimal”. Most economic analyses simply substitute “efficient” for optimal, but McDonnell offers three relevant values:
In considering efficiency there is the question of how well the governance system solves agency problems; how well the system facilitates large scale coordination problems; how well the systems encourage long-term innovation; and how they impose different levels of risk on the participants. Distributional equity is another important value, but again is difficult to measure. For many, distributional equity suggests an increased equality of income and wealth, but others find this less compelling. In some instances equity may conflict with efficiency: it could be argued the US system is more efficient, but inevitably results in greater inequality. Finally there is the value of participation, both in terms of any contribution this may make to the success of the enterprise, and as an end in itself in enhancing the ability and self-esteem of people. Corporate governance systems affect the level of participation in decision-making very directly, whether encouraging or disallowing active participation in enterprise decision-making. Arguably each of these values is of great importance, and the precise balance between them is part of the choice of what kind of corporate governance system is adopted. Yet there appears increasingly less opportunity to exercise this choice: The universe of theoretical possibilities is much richer than a dominant strand of the literature suggests, and we are currently far short of the sort of empirical evidence that might help us sort out these possibilities. Most commentators have focused on efficiency to the exclusion of other values. Moreover, even if convergence occurs, there is a possibility that we will not converge on the best system. Even if we converge to the current best system, convergence still may not be desirable.
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