Find and summarise (in no more than 1000 words) some of the work that has been done by Katherine Pistor and others on Convergence, Divergence and Path Dependency' of legal systems as it relates to International Corporate Governance.
In recent years the issue of corporate governance has become a keenly debated topic in international finance. In developed countries, some of the biggest corporate collapses in history have brought about a change in focus. No longer are governments and lawmakers trying to deregulate and reduce the controls and disclosure requirements of corporations. The deregulation boom has ended, as regulation comes back into the picture.
After the Latin American Crisis of 1995 and the Asian Currency crisis of 1997-1998, corporate governance is also a key area of concern in developing countries. Questions about the optimal set of rules and regulations that govern corporations are being posed. One of the biggest points of discussion in this debate is how corporate governance and legal systems are developing of their own accord, and in particular relative to one other. There are two schools of thought in relation to this issue: those who believe in convergence and those who believe in divergence. The convergence school says that countries select the laws that have been shown to be the most effective in other countries, because of competition between regulators. On the other hand, the divergence approach says that laws are path dependent, meaning that legal rules are determined by pre-existing structures and laws.
Convergence
In an increasingly globalized world, efficient new technologies and production systems spread rapidly, as competition quickly removes those producers who are slow to react. Those who believe in the convergence argue that "just as the founders of a firm have incentives to make the kind of products that people want to buy, lawmakers have the incentive to make the kind of firm, governance structure and securities that customers want to buy" (Easterbrook & Fischel 1991, pp. 212).
As barriers between countries fall, firms can more easily move to countries with the most attractive corporate governance rules. Inevitably, it is argued, the world will move towards have one set of harmonious legal rules.
Divergence
Why is it then that the legal rules we see throughout the world differ so greatly? This is the question that is asked by the divergence school of thought.
Shareholder Agreements offers a mechanism to the founding members of a company to regulate (and sometimes restrict) the shares allotted to the stakeholders. Though the restrictive covenants do not carry much favour by courts unless they form part of the company’s bylaws, yet they offer a way in which owners of a company can invite and incentivize talent – all the while regulating the flow of actual stake. The policies of a company, and sometime even ownership, can be jeopardized in an unregulated scenario.
Korten, David, 2001. When Corporations Rule The World. Berrett: Koehler Publishers; 2nd edition. pp 21-23.
"Principles of Corporate Governance." 2012. The Harvard School of Law Forum. Ed. Noam Noked. Web. 2 April 2014. .
The global landscape for business has become increasingly complex. Flexible governance is needed to operate in many markets. US impose a rigid governance model whereas many EU jurisdictions like Netherland offers corporate law that allows flexible governance models. As a result, businesses have the flexibility of setting it up. One such example is flexibility to operate management and supervisory board as a whole or
The corporate governance development has been driven by the hope to restore the investors confidence in the world’s stock markets again which has been damaged by financial scandals and corporate collapses. The development of big multi-national companies in the 1970s caused emphasis on the corporate governance to develop
Bibliography: Turnbull, S. (1997). Corporate governance: its scope, concerns and theories. Corporate Governance: An International Review, 5 (4), pp. 180--205.
In today’s business environment, a good corporate governance will be effective in stopping more financial scandals and collapses in future (Mallin, 2013) and protecting the reputation of both the company directors and the firms (Turnbull, 2000). Besides, it will also add value by improving firm’s performance and improvement on other efficiency. Contrarily, a poor corporate governance can affect the functioning of a country’s financial markets and the volume of cross-border financing (Claessens and Yurtoglu, 2012).
Law, A. (2012). Malaysian Code on Corporate Governance 2012 - Implications and Challenges to the Boards of PLCs. Kuala Lumpur: Crowe Horwath.
In the Enron scandal there have been many failures and the outcome to this is a practical standpoint which included a moral hazard in the company where managers where elaborating and not managing the companies risks. Take in to account the risks that had not been managed properly to certain extent in the company. Anglo-American system of corporate governance is centered as the ownership of an establishment and it is extensively circulated between the differences in shareholders than the ownership of being focused on the Sarbanes Oxley Act of 2002.
Tsui, J., & Gul, F. A. (2002). Consultancy on a Survey on the Corporate Governance Regimes in Other Jurisdictions in Connection with the Corporate Governance Review. Hong Kong: CityU Professional Services Ltd.
Corporate governance is the policies, rules and regulations, by which a corporation shapes the way corporate officers, managers, and stakeholders perform their duties to create wealth for the entity. According to Lipman (2006), good corporate governance helps to prevent corporate scandals, fraud, and potential civil and criminal liability of the organization (p. 3). Most companies, whether formal or informal, have some type of corporate governance for the management to follow. Large companies will have a formal set of rules and regulations, while small companies frequently have spoken rules often due to lack time to form any type of formal policies. There is often no corporate governance with family owned companies.
..., S. A., & MEERA, A. K. (2013). Let's Move to "Universal Corporate Governance Theory".. Journal of Internet Banking & Commerce, 18(2), 1-11.
Nottingham Trent University. (2013). Lecture 1 - An Introduction to Corporate Governance. Available: https://now.ntu.ac.uk/d2l/le/content/248250/viewContent/1053845/View. Last accessed 16th Dec 2013.
Organization for Economic Co-operation and Development. Improving Business Behavior: Why we need Corporate Governance. Oct. 2004. OECD.
...eve efficient resource allocation. Failure to achieve appropriate and efficient corporate governance could result in sub-optimal allocation of resources, abuses and theft by management, expropriation of outside shareholders and creditors, financial distress and even bankruptcy. While evaluating the role of corporate governance, it is imperative to also consider the levels of development of market institutions and other legal infrastructure including laws and enforcement that provide good standard for investor protection as well as ownership structures.