Growing demand for corporate governance reform
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In recent years, various researchers and scholars have argued that 'globalisation' is leading to escalating convergence in the nature of corporate governance systems, across the corporate world. Hansmann and Kraakman (2000) states; a global compromise has now emerged 'that corporate managers and authorities must operate exclusively in the economic interests of shareholders', and as a result, all jurisdictions will inevitably move towards a newer model of corporate governance. However, before analyzing in-depth nuances of this concept, we should first try and understand this terminology. The definition of corporate governance can be traced back to the time of the formation of Cadbury Committee (C.C.) in the year 1992. This committee was appointed by the conservative government of the United Kingdom in this year, with obligations of addressing the financial aspects of corporate governance. The C.C. came into existence in response to a number of corporate scandals that radiate uncertainty on the systems for controlling the ways corporations are run. This committee described Corporate Governance as 'the system by which companies are directed and controlled'.
Firstly, it is imperative to understand the significance that corporate governance as a concept holds to its beneficiaries. The importance of corporate governance lies in its contribution both to the concepts of 'business prosperity' and to 'accountability'. It's a strategic sword which has both its sides sharp enough, either to enhance the business efficiency or prove detrimental in the longer run. However, off-late the unprecedented inclination in the corporate scandals and failures around the world rather depicts a gloomy picture. Whilst progressing in this article I will illustrate various such corporate and financial fiascos and the reforms that have been put in place to avoid such massive failures around the corporate world. Besides, an in-depth analysis of the objectives and obstacles associated with corporate global reform measures would also be put forth.
2.1 Understanding Corporate Governance Reforms and its Implications.
A corporate governance dilemma occurs, at the most basic level, whenever an outside investor desires to implement control differently from the manager in charge of the organization. Disseminated ownership amplifies the problem by giving rise to differences of interest between the various corporate stakeholders and by producing a collective action problem among shareholders  . More often, an elementary predicament of corporate governance surfaces from an overview that: 'regulation of large shareholder involvement may provide better security to small shareholders, but such policies may escalate managerial discretion and scope for abuse', (Becht, Bolton and Roell, 2003; Weiss, 1990).
Since the year 2001, there has been renewed curiosity in the corporate governance practices of modern organizations, predominantly due to the high-profile disintegrations of a number of large corporations in the United States, such as Enron Corporation and WorldCom. Such collapses have further led authorities to examine the necessity of improved and stronger corporate governance reform measures. Convergence among stakeholders is an essential part of the organization and economic stability, adhering to the corporate reform measures. According to O'Sullivan (1999: p.4), "convergence arguments are emphasized by the neoclassical idea that the formation of liberal markets, which corporate governance reform is seen as facilitating, leads to finest economic outcomes and, in particular, greatest efficiency in terms of the distribution of scarce economic resources". Opinions such as these stiffen our beliefs of corporate governance measures being implemented. Besides, according to Rosser (2003), 'corporate governance reform needs to be understood, not in terms of the extent to which it endorses development and effectiveness, but in terms of the extent to which it serves or harms particular political and social interests'. It has become extremely essential for all the stakeholders to take into consideration various necessities of a deftly crafted governance reform. Efficient governance ensures that constituencies with a relevant interest in the company's business are completely taken into consideration.
2.2 Why Corporate Governance is an important issue?
Claims that corporate governance systems are undergoing scrutiny have intensified in the wake of the Asian crisis and its aftermaths. 'Limitations in Asian corporate governance systems were widely seen as a primary cause of the Asian crisis and its consequences' (Johnson et al, 2000; Dickinson & Mullineux, 2001). With the advent of various colossal corporate crises all over the world, institutions such as The World Bank  have launched a range of schemes to promote corporate governance reform in developing and transition economies. Especially after what happened to corporations such as Lehman Brothers and Merrill Lynch, it has become all the more essential to adopt measure to streamline and conserve corporate governance policies.
Corporate structures and governance agreements diverge widely from country to country. They are a product of the local economic and social environment. However, the fundamental issues of management accountability are more or less similar everywhere. The Cadbury Committee was a landmark in thinking on corporate governance. Cadbury's suggestion were publicly endorsed in the United Kingdom and included in the listing regulations. The report also proved to be influential in many abroad countries and it has presented a benchmark against which standards of corporate governance in other markets are being measured. Traditionally, the corporate governance models have long been adopted from countries such as the US and the UK. With globalization, increasingly more corporations and governments have been driven towards the more ''efficient'' mode of conducting economic activities modelled after the Anglo-American system (Gourevitch, 2003; Jomo, 2004). According to Deakin et al (2005: p.1), "The corporate governance atmosphere in the UK and the US is generally thought to be aggressive to the emergence of cooperative employment relations of the kind exemplified by labour-management partnerships".
Becht, Bolton and Roell, (2003) have identified some factors which can be attributed to the prominence of corporate governance as a crucial issue. They state events such as, world-wide wave of privatization, growth of private savings and the takeover wave of the 1980's, which have put the limelight on corporate governance in developing markets. Besides, the colossal takeover wave in the US during the year 1980's and in Europe in the 1990's has further fuelled the public debate on corporate governance.
2.3 Understanding Corporate Governance Reform Policies and debates.
Governance reform measure in the emerging and ripe markets has not progressed despite the willingness shown by the policymakers. According to a report developed by McKinsey & Company, there are various ways in which a new life to a reform agenda can be given. Firstly they propose that governance reforms measures need to allocate more emphasis to driving transformation through institutional reforms of capital markets. Secondly, they stress upon the fact that family run business should have separate rights and must be recognized separately. Corporate governance reform continues to be a major concern for most of the emerging economies, throughout the world. International organizations have played a very active and determining role regarding this issue. The International Monetary Fund, The World Bank and The Organizations for Economic Cooperation have all been raising the profile of the corporate governance reforms across the corporate and financial sector. Despite their persistent efforts, corporate market standards in emerging markets are still far behind as compared to those of the US, UK and Europe, as stated by the McKinsey Report. It has been identified that there is a lack of progress and this topic or issue needs much more to be addressed towards itself. Typically, corporate governance practices are crafted to suit the needs of core shareholders of the organization. However, due to this very reason, there has been an increase in the amount and intensity of conflicts between all the stakeholders of the organizations.
Problems: The state of Equity holders of corporations worldwide is gloomy, to say the least. According to a recent finding by a financial institution, stock markets are off 50% almost everywhere, banks and similar financial institutions are constantly under the threat of nationalization, dividends are being cut constantly, and to top it all there has been a constant upsurge in the number of frauds happening. According to Hadiz (1997), company employees have not been a key factor in corporate governance policy making, which in turn has given rise to the ever inclining ramshackle corporate governance. Other factors which contributed to this problem have been excessive risk taking by managers, failure on the part of the board and lack of knowledge of financial products.
Besides, differences in ownership structure have two palpable consequences for corporate governance, as stated by Morck, Wolfenzon, and Yeung (2005). Apart from this, governing shareholders have both the enticement and the power to discipline management authority. On the other hand, concentrated ownership can create conditions for a new agency problem, because the interests of controlling and minority shareholders are not aligned. There have been a lot of failures in the corporate circuit, which have in a way fuelled the ongoing debate about the corporate governance reform measures. Some of these failures include undetected off-balance sheet loans to a controlling family, deliberate misleading of investors, insider trading and other such infamous events (Becht, Bolton and Roell, 2003).
2.4 Scandals in the corporate domain
2.4.1 Enron: This is the most popular of all the scams and is still being referred to after so many years. This scandal involved unrevealing of debts, increasing revenues and dishonesty. It resulted to the dislodgment of more than twenty thousand people, the death of "America's Most Innovative Company" for many years in a row and the termination of one of the Big 5 global accounting firms (Andersen).
2.4.2 WorldCom: WorldCom is now known as MCI, Inc. is part of the Verizon Communications group, today. The company emerged from bankruptcy in the year 2003. The allegations included, inflating overall assets through capitalization of operating costs. The scam amount was estimated to be around, a whooping $11 billion. WorldCom's intense bankruptcy filing comes second only to the Lehman Brothers which happened in the year 2008, in the history of such filings in the United States.
2.4.3 Qwest Communications: It's a telecommunications company offering services to 14 states in the in the economy of the US. In the year 2002, it was understood that the company engaged in counterfeit accounting practices which resulted in the inflation of its revenues generated from its deals with Enron Corporation.
2.4.4 Satyam Computer Services: This is a company based in India (now taken over by Mahindra Group). This is the most recent scandal in the financial domain, where the chairman overstated the cash and receivables by a total of over $100 million. Overall Satyam's assets were inflated by about $1.85 billion.
2.5 Progress of efforts towards corporate governance reforms
In spite of all that has been happening all over the world, pertaining to the fiascos of the financial infrastructures of corporations, there has been a lot of effort taken towards developing measures to curb such events. In the last couple of decades, three largest continental European countries (i.e. Germany, Italy and France) have enacted noteworthy corporate law reforms to strengthen the system of internal governance, empower shareholders better, improve revelation requirements and toughen public enforcement regulations (Enriques and Volpin, 2007). Special prominence is being placed on empowering minority shareholders of the organization, which can hugely contribute towards streamlining the way corporate governance functions. Apart from this, Ziegler (2000) points out that, a long era of political fight between workers and employers in places such as Germany has produced a corporate governance system in which employees in many companies are represented on supervisory boards and are consequently able to play a role in company management. Also, economies across the world have now started to try and implement US corporate and securities and laws, pertaining to America's well-developed legal framework.
Besides researchers also suggest that, corporate governance framework should also ensure equitable treatment of all the shareholders, which also includes minority and foreign origin equity holders. As Nestor (2000) states, the board should be the main means for effective monitoring of the administration and for providing strategic supervision to the organization. There are many economies still, which are on the verge of falling down, due to the lack of corporate governance mechanisms. However, a proactive nature will have to be adopted by economies and its organizations to understand the nuances of corporate governance, so that they don't go bust all of a sudden. Some other measures include complementary legislations such as accounting law, commercial law, contract law, banking and dispute resolutions, and other such factors. Leuz and Verrecchia (2000) find evidence suggesting that firms' cost of capital does decrease when they voluntarily switch to a reporting regime that requires greater disclosure. So there has been such a brawl adhering to the importance and significance of disclosure settings. Some of the key objectives of corporate governance reforms include maximizing economic value of the institutions, maximizing market value portfolios, furthering interests of other stakeholders of the organization, and alike. In a much talked about recent book, Roe (1994) & Stiglitz (1975) disputes that politics rather than economic competency shaped American corporate law framework, at least at the Federal level. However, the reason why governance reforms come into existence is not the issue, the problem is whether they come forth or no. All the economies in the world must try and act towards the single most goal of increased efficiency in corporate governance.
2.5 Obstacles associated with global reform
Although it is often stated that good corporate governance is mandatory, it is also a fact that 'one size does not fit all'. So it becomes futile for economies where they try and imbibe governance measures based on other economies. There is a particular problem as noted by an author. The essence of Agency Problem (Shleifer and Vishny, 1997) is the separation of management and finance, or in simpler words ownership and control. This problem states that there is ideally a contract that financiers and managers sign, however they state trouble that 'most future contingencies are hard to describe and foresee which leads to mismatch in contract fulfilment.
Apart from this, enforcement problems are a commonality. Most of the objectives and plans are not very simple to implement in a corporate structure. If one constituent stands out among the economies, it is that enforcement is an overruling concern. Most countries have significant substantive rules and regulation and disclosure requirements that cover most basic authority disclosures. However, without a market supervisor that can efficiently monitor for violations of law, the disclosure regime will not function
One of the other major problems with the implementation of global reforms is the coordination of the parties involved in type of setting. More often than not, synchronization among the stakeholders becomes extremely complex, resulting in inefficient governance measures. Besides, a common global reform measure will not suffice the subjective needs of individual economies, as has already been explained above.
In summation, obligatory governance rules are necessary for two apex reasons; firstly, to conquer the collective action difficulty resulting from the dispersion among shareholders and secondly, to make certain that the interests of all applicable constituencies are put forth. Apart from this, it is essential on the part of the management to ensure that they cater to all the stakeholders of the organization. Not only will the management of various corporations, but also the government of the economies will have to stand in together to frame impeccable measure of corporate governance.
All over the world, the regulatory framework for corporate governance reform measure has been substantially revised and strengthened, especially in the domains of financial reporting, minority shareholder rights and merger & acquisitions (Rosser, 2003). Hermalin and Weisbach (2006) state that, economies across the world, in spite of a long era of studying regulation, has been slow, to provide a conceptual framework for their evaluation. They also mention that such framework requires treating governance organizations as endogenous, so it is easy to evaluate behavioural changes in reply to a new governance restraint.
In the end a synchronized effort is required by the economies (on a macro scale) and by the organizations (on a micro scale), to sustain the measures of corporate governance for the longer run. Otherwise, the ongoing debate over the corporate governance reforms seems endless to me.
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