Are International Corporate Governance Standards in Your Future?

Lora Bentley

As more companies go global, the idea of international corporate governance standards, or a converged governance model, is gaining steam, according to a Knowledge@Wharton article at Sify.com. The converged model is one largely based on that used in the United States.

 

Wharton management professor Michael Useem suggests that many foreign companies are motivated to choose Western governance models because they allow them to be more competitive. He says:

Put yourself in the shoes of Fidelity or Vanguard or other investors out there who are diversifying out of U.S. stocks. You want to assure yourself that the companies you are going into are reasonably well governed -- that they have acceptable accounting standards and are transparent.

The changes show up most often in board structure, the story says. Useem predicts that within 15 years, most boards will have 10 to 15 members and at least three major committees -- one each for compensation, auditing and management oversight. Members will be largely independent of management.

 

Though many share Useem's view, others do not. Wharton management professor Mauro Gullen, for example, says companies in other countries will always "exhibit local characteristics" because of differing socioeconomic and cultural norms. And not all those things are bad, according to Knowledge@Wharton:

Guillen argues that different systems of governance are appropriate for different industries and that global investors stand to benefit from diverse governance structures which might actually enhance corporate performance.


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