21
their stakes in suppliers (or major customers) and concentrate on providing more returns to their
shareholders.
Market-driven or functional convergence
37
may be the most important force behind the emergence of
international principles, such as the OECD Principles of Corporate Governance. The Principles are the first
multilateral instrument in the area of corporate governance and the most important attempt to date at
establishing elements of a global corporate governance language. Their preamble, however, suggests that a
systemic convergence of legal systems is not part of their direct objectives:
“The (Principles') purpose is to serve as a reference point. They can be used by policy makers as they
develop their legal and regulatory frameworks for corporate governance that reflect their own economic,
social, legal and cultural circumstances, and by market participants as they develop their own practices".
38
Path dependency and the politics of governance
The political and historical reasons for national idiosyncrasies in economic organisation have been the
topic of many discussions among scholars. Some
39
have argued that history has sowed considerable
divergence into national systems which are “path-dependent” and, hence, unlikely to converge at least in
the medium-term, notwithstanding pressures from the capital markets. In other words, the dynamics of
history should not be taken lightly when it comes to the shape of legal norms and institutions.
While political and institutional resistance to alien concepts, irrespective of their perceived efficiency, is a
considerable constraint to convergence
40
, these factors should not be overestimated in OECD countries,
especially in our post-cold war, Internet era. Citizens are increasingly open to foreign ideas, customs and
norms. The acquisition of major industrial companies (for example, Chrysler by Daimler Benz) or
financial institutions (see the fate of the quasi totality of the British merchant banks) by foreign
competitors does not seem to have caused any political problems. Shareholder activism a l’americaine
seems to be paying well even in such a staunchly “continental” corporate governance environment as
Switzerland’s; and recently a company which only two years ago was a state-owned telecom monopoly
was subject to a highly contested hostile take-over bid in Italy.
There is also top-down convergence. The increasing exposure of policy makers to regional and global
policy debates and the importance of international dialogue in shaping leaders’ minds about reforms is
more intense today than it was just a decade ago. European integration has made possible the
implementation of a number of policies - such as widespread privatisation - that were hitherto politically
unthinkable. The availability of other countries' experience and the wish to be part of an open world has
made a lot of changes possible. Korea is a case in point: previous governments would have thought of
announcing the sale of two of Korea's largest commercial banks to foreigners within the same month as
nothing short of political suicide. Finally, the fact that a group of government officials negotiated a
“universal” text such as the OECD Principles in one year’s time speaks volumes about the political trends
of convergence that are developing.
37
See Gilson (1998).
38
OECD (1999).
39
Bebchuk and Roe (1998).
40
See Charny (1998).
22
Legal convergence
Finally, there is the issue of laws and regulations. Legal infrastructure and its dynamics are included in the
path dependency argument as they are an important part of the institutional apparatus, but it might make
practical sense to look at them separately from the rest of political and social institutions. Widely differing
systems of corporate law and securities regulation have been credited with an important role in explaining
divergences between national ownership and control environments. Some commentators have made a
distinction between common law and civil law countries and have analysed the impact of the two systems
on governance. Under common law, the firm can contract out of most legal norms. In contrast, civil law,
with its more rigid statutory rights, is perceived as less flexible in terms of economic decision making.
41
Company law itself comes in many different shapes. The central concept of limited liability may be
treated differently in different jurisdictions. In some countries, the “firewall” between a corporation and its
shareholders is impenetrable, but for the worst kind of abuse. Others take a less austere view. In
Germany, group legislation allows for piercing the corporate veil in situations where one firm in practice
assumes decision-making functions of another.
42
In the Anglo-Saxon tradition, the corporate concept is based on a fiduciary relationship between
shareholders and the managers. In the continental tradition, the company has an independent will, i.e. in
theory, what is good for the corporations might not be good for its shareholders. These differences
penetrate down to company law particulars such as shareholder rights, the role of statutory capital and the
responsibility of the board, just to mention a few.
However, these differences might not be as important as they look and they might be getting less and less
important. All countries recognise the preponderance of owners as the final arbiters of corporate strategy
and make the concept of residuality central to the governance structure of the corporation, albeit at
differing degrees. In addition, the increasing importance of equity markets have subject a large segment of
the corporate sector to securities regulation - statutory law that firms cannot contract out of and that is
fairly similar in common and civil law countries
43
.
It seems that corporate governance-related legislation has been converging over the past few years. Recent
German legislation has substantially tilted the control of the decision making process toward shareholders
and has increased transparency in the way accounts are prepared, especially as regards consolidation; it has
also made important steps in facilitating take-overs. In France, the 1997 Marini Report on company law
reform, recognised the need for a “contractualisation” of French company law, by allowing firms more
liberties in the way they shape their financial structures. In Italy, the so-called “Draghi” law of 1997,
significantly increased shareholder rights. In all of the above countries share buy-backs were allowed, in
recognition to the fact that companies need more flexible tools to return money to their shareholders. At
the other side of the spectrum, the US Securities and Exchange Commission is becoming more tolerant of
“relationship” investors and is more and more willing to grant so-called “safe harbours” for consultations
between them and company management.
Finally, convergence is also the result of an increasing tendency of large firms to “choose” their regulatory
environment. This, of course, is not due to legal eclecticism but rather to the need to tap the most liquid
41
See La Porta et al (1997).
42
See Hadden (1983).
43
Coffee (1998) points out that “... convergence can occur (and is arriving) at the level of securities regulation, even
while corporate law convergence has been largely frustrated”.
23
and cheap sources of capital. By choosing, for example to list their shares in the NYSE, large companies
from a growing number of jurisdictions become subject to US securities rules and accounting norms. This
will in time have a powerful impact on the shape of rules and institutions in their home countries.
44
V. Conclusions
We have seen from the above discussion that convergence is indeed taking place for reasons related to the
globalisation of financial and product markets, an increasing proximity of legal and institutional norms and
a more open circulation of and attitude towards foreign ideas. Having said this, one should not expect
uniform corporate governance institutions and arrangements in the world, just as one cannot expect the end
of nation states in the foreseeable future. Ownership and control arrangements are still a part of a society’s
core characteristics and will remain to a considerable degree idiosyncratic.
More cross-border equity investment and the growth of domestic and international market institutions
should be expected to result in a better mutual understanding between overseas investors and companies
and consequently in an increased capacity for companies to access international sources of finance.
Investors need to understand and assess their investments. Convergence in transparency and useful
disclosure norms is therefore a key area where a lot needs to be done.
A growing consideration of stakeholder interests is viewed increasingly as a key growth factor in the long-
term value of companies. In multinational companies, stakeholders come from many different countries.
The emergence of unified strategies to deal with these issues across national boundaries is in itself another
driver of convergence.
The OECD Principles of Corporate Governance are both a result and a facilitator of convergence. Without
the latter, the need for a common language between the 29 Member states of the OECD and beyond would
not have emerged. The multilateral character of this instrument testifies to the strong consensus emerging
for the need of a common understanding on these issues. On the other hand, the open-ended and non-
prescriptive character of the OECD Principles makes them a very valuable tool for the development of
international dialogue for the promotion of better corporate governance. As this article has demonstrated,
the variety of corporate governance arrangements found among OECD countries gives the Principles a
universal character that transcends the developed/developing demarcation line.
Last but not least, convergence does not mean victory of one system over another. It should rather be seen
as giving more choices to the enterprises, when it comes to following a corporate finance and governance
“path”. In fact, the patterns of ownership and control should ultimately correspond more to the needs and
characteristics of a particular enterprise than to the “system” prevalent in the country. Firms should have
the possibility to move smoothly from one regime to another as they grow and their needs and
constituencies change.
44
See Coffee (1998).
24
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