Corporate Governance: Does Any Size Fit?: Volume 11

Cover of Corporate Governance: Does Any Size Fit?
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Table of contents

(17 chapters)

Contents

Pages v-vii
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The papers compiled in this special issue have been presented at the conference on “Corporate Governance and Ethics: Beyond Contemporary Perspectives” that has been held in June 2004 in Sydney, Australia.1 The conference has brought together the three disciplines that impact on governance issues: accounting, management, and law. This issue reflects this interdisciplinary approach to the subject matter.

Whitehead's notion that if you say something for long enough, it will be believed, aptly describes the development of the latest corporate governance regimes. Curbing managerial opportunism is the current focus, but the regimes contain only more of what has failed in the past. Inexplicably, at a time when reformers are declaring their allegiance to principles over rules, long-standing principles are being by-passed and more rules imposed. Whereas much of what the rules address is contestable, the frequency with which it is proclaimed has been seductive – it is being accepted as if it were true, not by virtue of either convincing evidence or argument, but through the power of repetition. Stock options in executives remuneration packages are to be expensed, not because they satisfy expensing criteria, but because of the penetration of the mantra that they are expenses; independence is being accepted as the consequence of not being in particular relationships, not because that will change one's state of mind, so much as it will appear likely to have done so; and impairment calculations are being declared superior to conventional amortization techniques, not because of any demonstration that they better indicate the decrease in the market price of a physical asset, but because of the repetition of the impairment litany. Corporate governance is being perceived as a set of processes, rules to be complied with, rather than the desired outcome of them – that is, the authority exercised with probity and unquestionable integrity over corporations’ affairs, for the public good. There is a less than clear explanation of whether or how the separate governance processes mesh with one another. The governance miasma confuses rather than clarifies corporate activity. Underpinnings of the mechanisms in the governance regimes have achieved a false status of concreteness. Contrary to the universal indoctrination, the case is stronger for fewer, rather than more, governance rules.

Corporate governance has attracted enormous attention both in the area of law and in the area of financial economics. In comparative corporate governance studies, many people have devoted their energy to find a best corporate governance model. I argue that a functional analysis does not support the view that there is a single best corporate governance model in the world. I further use the transplantation of an English style takeover law into China to show that the importation of foreign law is not always based on careful analysis whether the imported foreign law is the best in the world. Furthermore, I use the subsequent adjustment of the transplanted English takeover law in China to show that the imported foreign law is subject to local political and economic conditions. If there is no best corporate govern model and the transplantation of foreign law into other countries with different social and political background does not achieve similar objectives, the search for a best corporate governance model is misguided. Just as tort law or constitutional law regimes may have diversified models, so do corporate governance regimes in countries with different historical, social and political backgrounds.

This paper seeks to challenge a tacit, but nevertheless prevalent, notion that a robust corporate governance framework will, as a matter of course, engender good corporate social responsibility and, thereby, ‘ethical’ decision-making. It does so by drawing, in the first instance, on an example of apparent good corporate social responsibility and exposing the possibly unethical dimensions of the incident. The paper suggests that corporate governance always has a subjective ethical dimension and that such regimes are best understood as ‘regimes of practice’ – actions, actors and discourses – that shape and mould both thinking and action. Such regimes, it is posited, can best be explored by looking at actual instances or events of significance and analysing these. The paper then offers the example of international pharmaceutical companies’ HIV/AIDS drugs pricing policies, especially in South Africa, as such a critical incident and interrogates it using the ‘analytics’ approach outlined by Dean (1999). The principal aims of the paper are to demonstrate that corporate social responsibility and corporate governance regimes are not neutral processes but aspects of ‘governmentality’ and to offer a technique, analytics, by which such processes can be explicated.

This paper examines the corporate and institutional responses to the challenge of HIV/AIDS in South Africa. The circumstances of South Africa have demonstrated the need for new ways of governance if businesses and society are to be sustainable. A confluence of historical, political and social factors in the 21st century, has produced the circumstances for new corporate principles, practices and reporting. The paper investigates the impact of institutional initiatives on corporate practices. Based on semi-structured interviews, the influences of the Global Reporting Initiative (GRI), the King Report, the Johannesburg Securities Exchange (JSE), and trade unions on corporate practices are explicated. There is no single path to a solution. What is clear is that firms cannot be uni-dimensional in the pursuit of profits, but have to be more ‘inclusive’, and not only in South Africa, but everywhere.

Recent spectacular collapses globally have sparked renewed public interest in corporate governance and the pursuit of a new global model. The prevailing dominance of an American model has overshadowed constructive attempts to derive a model that is more appropriate for ‘non-western’ and developing countries. In this paper, I examine the discourse of corporate governance in China. I argue that rather than being a mere captive of the American model, it could have crafted and developed an alternate and more appropriate model that takes into account the economic and social needs of China instead of a corporate governance model developed for other countries.

In recent years there has been considerable discussion of and some movement towards, harmonisation of governance structures and processes between the EU and North America in particular. Multilateral organisations (i.e. World Bank), the USA's Sarbanes Oxley and the expansion of the EU in 2004 have all provided added impetus for a broader focus on harmonisation or convergence. But is convergence possible? Can any ‘one size fits all’ approach to governance be consistent with divergent national legal and cultural systems? A qualitative study of Austrian company directors is used to investigate whether the recent development of a more open economy coupled with the global capital market is generating a convergent model of director conduct. It was apparent that a stakeholder approach, where stewardship theory best explains the processes to mediate director conduct, continues to best describe the Austrian way. This contrasts with ‘theory in use’ in Anglo-American practice which conforms to the tenets of Agency Theory. We conclude with a discussion of the implications for sustainability management.

In Canada, companies are focusing on corporate governance as an ethical response to accounting scandals and the resulting crisis of confidence. Although, many aspects of corporate governance remain free from strict regulation, we examine the voluntary changes in the disclosures of the largest Canadian companies. We attempt to understand, through disclosure theory, discourse analysis, and structuration theory, the quality of these corporate governance disclosures. We recognize that much of the disclosure is opportunistic as companies state that they have not only complied with the non-compulsory Canadian guidelines, but have also met and exceeded the requirements of U.S. regulators. This is an important finding that supports the notion that Canadian companies do not need rules and regulations. Instead, a culture of governance is developing at the boards of large companies that encourages voluntary change. Whether this is enough to prevent future accounting scandals is a question for future research.

This exploratory study attempted to determine the level of formalization and implementation of corporate governance and risk management practices, and the role of human resource management in the design and formulation of such practices. This study also attempted to derive some patterns of association among the variables studied, including the degree to which specific human resource management practices were linked with the overall corporate governance and risk management objectives. Human resource management was consulted from time to time during the formulation of strategic plan, the design of behavioral control mechanisms, and the development of risk management guidelines and formal corporate culture programs. However, it was consulted only during implementation of corporate governance structures at the board level. Generally, human resource management involvement in the formulation of corporate governance and risk management mechanisms was related to the degree of formalization and implementation of such mechanisms, but not to the degree of congruence of human resource management functions with corporate governance and risk management objectives. However, the degree of formalization and implementation of corporate governance structures at the board level was related to the degree of congruence of human resource management functions with corporate governance and risk management objectives and the driver measures of performance. The latter was likewise related to mechanisms of behavioral control.

For decades the majority of contributions to governance practice have been compliance-focused while much governance research has been grounded in an agency view (Daily, Dalton & Rajagopalan, (2003), Academy of Management Journal, 46(2), 151–158). Much of that effort has failed to observe the key drivers of boardroom decision making. The objective of this research was to explore the shareholder–stakeholder tension within an organisation as it progressed through sequential forms of ownership. The results presented in this paper are primarily drawn from the immediate ex poste and ex ante events surrounding the collapse of Ansett Holdings Ltd and the latter government bailout of Air New Zealand. New Zealand's national airline provided a relevatory case (Yin, (1989), Case study research: Design and methods (Rev.ed.). Newbury Park, CA: Sage), the opportunity to study a phenomenon previously inaccessible to research, because data hitherto unavailable ‘entered’ the public domain. However, when reinterpreted in light of direct input from key executives involved – benevolent informants – much of that data needs to be reconsidered to better understand why critical decisions were made. The Ansett collapse subsequently became the single largest corporate collapse in Australian history while the loss to Air New Zealand became New Zealand's largest-ever corporate loss. The decision by Brierley Investments Limited (BIL) to ‘block’ Singapore Airline's (SIA) entry into the Australian market, implemented through the high risk acquisition of the balance of Ansett, directly resulted in both ‘collapses’. Decisions by the organisation's governance were found to have a direct impact on the performance of Air New Zealand through various phases of its ownership. While the ‘collapses’ are attributed to a failure of governance to act in the organisation's (stakeholders) interests. Growing tensions between shareholders and stakeholders were observed to be suppressed as the BIL dominated and led Board achieve complete control over decision making. There remains considerable opportunity to further governance research through the examination of business ethics, notably the view that appropriate ethics can be met by way of legislation (e.g. Diplock, (2003, April), Corporate governance issues. Securities Commission of New Zealand. Available from: http://www.sec-com.govt.nz/speeches/jds240403.shtml). However, the role of governance, particularly whom it is there to serve requires far greater attention on behalf of researchers. In the cases of Ansett and Air New Zealand the Board ceased to act in best interests of the organisation in favour of the major shareholder.

This paper is an exploration of the potential place, if any, for ethics in corporate governance. It begins with the influential role that agency theory has played both in the conception and reform of corporate governance. Its grounding assumption of self-interested opportunism leaves little or no room for ethics beyond what pays. This conception is then contrasted with a Foucauldian view of governance in which ethics is explored in terms of how an ‘ethic’ of shareholder value has been promulgated in the last decade. The third section of the paper explores the contemporaneous explosion of interest in corporate ethics and social responsibility and suggests that there is a nascent disciplinary regime being assembled which may redefine the terms of shareholder value to include environmental and social performance. What is paradoxical about both an ethics of shareholder value and corporate responsibility is that they are effective only through creating a preoccupation with the self and how the self is seen, rather than the other. The final concluding part of the paper suggests that ethics, following Levinas, should be understood in terms of sentience and the ‘responsibility for my neighbour’ that this assigns. Such a view of ethics refutes the individualism that agency theory takes as the essence of human nature, and Foucauldian analysis suggests is the product of disciplinary processes. Its grounding in sentience and proximity however offer it only a local role in corporate governance.

Large companies are the dominant forms of wealth creation in society today. As well as providing jobs and export income, they are key influences on social cohesion. We ignore how companies are run at a peril to us all. However, today investors are increasingly concerned about the ethical behaviour of those who run companies. Regular disclosures that directors and executives have behaved unethically reflect badly on the corporate sector as a vehicle for investor funds. By comparison, Australian company directors are increasingly stating that there is already too much concentration on the mechanisms of corporate governance, indicating that they will happily tick the boxes, but do little more.

In the latter part of the 20th century, companies discovered mission. The key elements of any mission must include the major corporate participants – investors, suppliers, customers, employees and society. The role of management is to develop a structure that can operationalise the mission. Such an approach puts ethics – how we treat other people – at the core of a company's activities. Trust is a critical element in how the interests of these stakeholders are taken up in decision-making and embedded in strategy, plans and action on the ground.

In the aftermath of significant corporate collapses in the 1980s and then again at the start of this century, companies also discovered corporate governance. According to the much referenced Cadbury Committee in the U.K., corporate governance is the system by which companies are directed and controlled, i.e., a the system of checks and balances for effective resolution of conflicts and control over the exercise of managerial power.

This paper suggests that an alternative “professional” approach to governance is likely to be more effective. Today, the role of management is to “add value” and contribute to the “good” of society. This good is the collective set of stakeholder interests entrusted to the governing board to look after. A governance model that integrates the human good with the operations of ‘mind’ in terms of learning and leadership highlights eight distinctive “products,” the eighth being valued products and by-products delivered to each stakeholder. The model is structured around the person's capacity to ask four categories of questions, including those that provide orientation and direction.

The model is used to examine a contemporary governance issue experienced by the board of directors at the National Australia Bank Limited.

Spectacular corporate failures including One Tel, Ansett, HIH, Enron and Worldcom and the recent fiasco with National Australia Bank are evidence of a legitimacy crisis in current corporate governance practices. This paper analyses the organisational impact of recent “best practice” guidelines and the recommendations for reform. We conclude that substantive concerns still exist and it is likely that companies will utilise a “tick the box” approach emphasising form over substance governance changes. We argue for a two-fold approach to embed effective ongoing reform. The first involves cultural change(s) at the boardroom level to develop a “real” team approach. This would embrace the use of constructive conflict in the decision-making process and also incorporate elements of trust and openness. Constructive conflict, we argue, leads to real and effective boardroom behavioural changes.

The second strand of reform proposes that such changes should be extended into the internal decision-making (enterprise governance) arena. Such a move towards organisational pluralism devolves decision-making and allows greater employee involvement in the “running” of organisations. It also entails a significant re-framing of organisational values, culture and followership. The leadership role becomes one of facilitation and support not the current dominant “command and control” mindset.

Cover of Corporate Governance: Does Any Size Fit?
DOI
10.1016/S1041-7060(2005)11
Publication date
2005-06-23
Book series
Advances in Public Interest Accounting
Editors
Series copyright holder
Emerald Publishing Limited
ISBN
978-0-76231-205-4
eISBN
978-1-84950-342-6
Book series ISSN
1041-7060