Convergence vs Divergence: Examining Corporate Governance Systems

This essay addresses the debate on whether corporate governance systems across different countries are converging or diverging. It examines the usefulness of categorizing corporate governance systems to explain differences between countries, considering factors like legal, social, and cultural environments. The essay also discusses the challenges of transferring aspects from one system to another and the role of international bodies in promoting convergence. It contrasts the standard shareholder model with other models like the labor-oriented model, highlighting forces that both promote and hinder convergence. Ultimately, the essay concludes that significant differences will persist among corporate governance systems due to unique national factors.

Running Head: CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
Name of the Student:
Name of the University:
Author Note

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Issue:
In the given scenario, the issue that has been identified is whether categorization of different
corporate governance systems would be useful in explaining the difference between the
corporate governance systems of the different countries
Rule:
Corporate Governance can be defined as the methods which are applied by the suppliers of
finance o manage the affairs and govern the operations of companies. It can be stated that these
suppliers are given the assurance that they will be entitled to get the return on the investment
made by them. Shareholders of a company invest money in the company unlike the stakeholders
(Tricker, and Tricker 2015). Therefore it can be inferred that there is high risk of their losing the
money invested in the company, if the same runs into financial scandals. However, the
stakeholders do not have that risk. It can be mentioned that enough emphasis is given to the roles
of the shareholders, however the roles played by the stakeholders are ignored.
It is worth mentioning that corporate governance must be focused not at firm level but at country
level. Corporate Governance can be analyzed by a country specific framework of factors
shaping the patterns of influence that the employees, managers, shareholders, suppliers,
customers and creditors exert on the process of decision making by the management (Aguilera et
al.2018). It can be mentioned that Corporate Governance systems of countries can be
categorized into four groups of industrialized nations of the world. They are:
 The Latin countries which include France, Italy, Spain and Japan
 Germanic Countries which include Netherlands, Germany, Switzerland, Denmark.
Sweden, Norway, Finland and Austria

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 Anglo Saxon Countries which include USA, Canada, UK and Australia
 Japan
Corporate governance systems of China and other emerging countries are also to be analyzed by
the framework as mentioned above.
It can be mentioned that Corporate Governance Systems have 8 characteristics which include:
 Board system
 Salient stakeholders
 Concepts of the firm
 Stock Market’s importance
 Ownership concentration
 Compensation paid to the executives which are dependent on their performance
 Time horizon for the economic relationships.
It is worth mentioning that companies operate indifferent spheres and therefore it can be inferred
that the companies carry on their operations in different legal, social and cultural environments.
It is due to this reason companies have different types of corporate governance that controls and
regulates their operations.
Application:
German companies which are limited by shares and U.S listed companies generally use the one
tier or two tier model of corporate governance which is based on the number of members present
on the board. The US listed companies use the one tier model where as the German companies
limited by shares use the two tier model (McCahery, Sautner and Starks 2016). The one tier

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model can be defined as the sole board model where as the two-tier model works with the
supervisory board and the management of the company. The two tier model helps in monitoring
the executive functions of the company. Switzerland on the other hand has a very flexible
approach to corporate governance, it adopts any model it deems fit. In order to understand the
complex yet dynamic structure of corporate governance, it is important to state that countries
need to implement the principles of corporate governance with accountability and dynamism.
Conclusion
Thus, to conclude it can be stated that categorization of different systems corporate governance
can helpful in explaining the difference between the corporate governance systems of the
different countries.
Answer Two:
Issue:
In this given scenario the issue that can be identified is whether the systems of different
corporate governance are converging or whether there will be major differences between the
corporate governance systems of different countries.
Rule:
It is worth mentioning that the problem that is faced by the systems of corporate governance is
that the corporate governance systems are becoming persistently different from others.
Therefore, it becomes difficult to imitate the corporate governance system of a country. Due to
the growing differences in the different systems of corporate governance of different countries, it
becomes difficult to implement one or more aspects of a corporate governance system in a

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different system of corporate governance. It can be assumed that if one or more aspects of a
corporate governance system are implemented in a different corporate governance system the
consequences are likely to unknown or unintended. It can be mentioned that there exists an
international framework to which the different systems of corporate governance must adhere
(Kraakman and Hansmann 2017). Therefore, it can be inferred that if the differences in the
systems of corporate governance keep growing, while keeping the unique features of such
corporate governance intact, adherence to such international framework would be difficult. There
are several international boards like the OECD and World Bank are working to help the different
systems of corporate governance to converge so as to maintain uniformity across all the
corporate governance systems in different countries of the world. The standard shareholder
model of Corporate governance can be considered to be the most efficient and economical as it
promotes the Darwinian model of Corporate governance. According to the Darwin Model it can
be stated that the most economically fit corporate shall survive (Boateng. and Lu 2016). The
basic advantage of the standard stakeholder model is that the countries which have adopted this
model of corporate governance systems are performing better than those which have adopted
other systems of corporate governance.
Application
It can be mentioned that there are other models of corporate governance other than the standard
stakeholder model. The other models of corporate governance have not achieved significant
success due to increasing competition in the global world. It is worth mentioning that the labor
oriented model of Corporate Governance, which is followed by Germany is constituted of a
weak board and is not that efficient in making the decisions. The manager oriented model of
Corporate Governance is another model which is which faces the problems in relation to agency.

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It can be argued that there are different forces acting against the convergence. Such forces which
are acting against the convergence of Corporate governance systems state that different
ownership structures appear different and stronger than others.
Conclusion
Thus, in conclusion it can be stated that there will be major differences between the corporate
governance systems of different countries.

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Reference List
Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and
practices. Oxford University Press, USA.
Aguilera, R.V., Judge, W.Q. and Terjesen, S.A., 2018. Corporate governance
deviance. Academy of Management Review, 43(1), pp.87-109.
McCahery, J.A., Sautner, Z. and Starks, L.T., 2016. Behind the scenes: The corporate
governance preferences of institutional investors. The Journal of Finance, 71(6), pp.2905-2932.
Boateng, A. and Lu, J., 2016. VARIETIES OF CORPORATE GOVERNANCE MODELS. Corporate
Governance in Developing and Emerging Markets, p.17.
Kraakman, R. and Hansmann, H., 2017. The end of history for corporate law. In Corporate
Governance (pp. 49-78). Gower.