Debates on Divergences



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Debates on Divergences
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  1. Debates on Divergences

  • There is no single model of corporate governance because the practice of corporate governance depends on the various culture of each country and it is constantly evolved in order to meet changing conditions in each country.

  1. Political Precondition

  • Some countries are able to spread the risk easily because of they have a well-defined internal structure of governance and also due to their political presence internationally.

  • A country cannot quickly adapt with foreign best practice due to the difference in political perspective of each country.

  • For example, The UK has revised their corporate governance code in 2018 to charge boards with establishing the company's purpose, value and strategies. In France, the new Pacte Law requires that companies be managed to further the corporate interest, instead of focusing on stakeholders' interest.

  1. Path Dependency Theory

  • This theory explains the continued corporate governance practice in a country is based on historical preference in that country.

  • Occurs because it is easier and most cost-effective for a company to run the business by using the same path that has been set, instead of creating an entirely new one.

  • Corporate rules - can influence corporate ownership and governance structures.

  • Some countries have mandatory corporate rules that constrain or push in a certain direction where some rules effect the constitution of the BOD and the degree of labor influence in a firm.

  • Example, (1) Japanese employee-oriented norms lead to insiders dominating the corporate boards. (2) American stock exchange rules and state corporate law doctrines militate in favor of a high proportion of independent directors.

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