Future Trends - Corporate Governance and Business Ethics

Contemplating the future of corporate governance systems is a hazardous business. Each of the systems is facing pressures to change. The long term stakeholder orientation of the German and Japanese governance systems is under insistent pressure to deliver shareholder value, particularly from overseas investment institutions. However the market oriented short tourism of the Anglo-American approach is itself being challenged by international, national, and community agencies to recognize wider social and environmental responsibilities. The German and Japanese systems are faced with demands for increased transparency and disclosure from both regulators and investors, while Anglo-American corporations are faced with repeated calls for greater accountability from institutional investors and other stakeholder communities.

Corporate-governance-convergence-Alternative-directions

Corporate-governance-convergence-Alternative-directions

Bratton and McCahery recognized four possible outcomes from the present pressures to converge, and the resilient institutional resistance encountered:

  1. A unitary system as there is strong convergence towards a global system which assembles the best elements of both major governance systems and combines them together (the least likely alternative)
    A universal market based system as anticipated by the Chicago School of financial economists, representing the triumph of the rules based outsider system;
  2. An improved variety of governance systems in which there is weak convergence, but some learning from each other between the different national systems;
  3. A set of viable distinctive governance systems, based on distinctive institutional complementarily each having a unique identity and capability.

Contrary to all of the predictions of an early and complete convergence of corporate governance systems, the final two alternatives are the closest to the present state of play, and are likely to be for some time to come, as this differentiated system has a proven robustness and usefulness.

It is likely the campaign to raise standards of corporate governance will continue for some time in all jurisdictions of the world. There will be a strenuous effort to secure commitment to the essential basis of trust identified by the OECD as fairness, transparency, accountability, and responsibility. However this will occur in countries with different cultures, legal systems, and economic priorities. To assume that all countries will adapt to the same corporate governance structures is unrealistic.

It is likely that fundamental features of the European and Asian approaches to corporate governance will be maintained, even where the apparatus of market based corporate governance are formally adopted. Often these differences will be perceived as part of the cultural integrity and economic dynamism of the economy in question. At the same time countries will adopt the important universal principles such as international accounting standards, but within a culturally diverse set of corporate structures. This is part of the evolving and dynamic complexity of corporate life, in which both convergence and divergence can occur simultaneously. As pressures to conform to international standards and expectations increase, the resilience of historical and cultural differences will continue. The business case for diversity is, if anything, even more compelling. There will be a continual need to innovate around new technologies, processes and markets. This will stimulate new organizational and corporate forms, the shape and objectives of which will be hard to predetermine.


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