Global Phenomena and Social Sciences by Jean-Sylvestre Bergé Sophie Harnay Ulrike Mayrhofer & Lionel Obadia

Author:Jean-Sylvestre Bergé, Sophie Harnay, Ulrike Mayrhofer & Lionel Obadia
Language: eng
Format: epub
Publisher: Springer International Publishing, Cham

Convergence Towards Global Corporate Governance Principles as a Consequence of Legal Standardization

As a direct consequence, the fact that codes are most often made of broad standards may facilitate the production and world-wide dissemination of similar corporate governance principles across different countries. On the one hand, if broad standards are less costly to produce and to comply with for private self-regulating agents, it is very likely that all self-regulating authorities in various countries will be tempted to issue standards rather than bear the cost of issuing precise rules. On the other hand, we have argued above that common standards improve agents’ information and comparability in financial markets and that better information benefits all agents (see section “Introduction”). Logically, then, self-regulating agents can be expected to issue similar or compatible standards, resulting in global convergence in corporate governance principles at the global level.

In addition, the fact that most codes are made of broad standards may also facilitate global convergence in the field of corporate governance for another reason. Indeed, corporate governance standardization through codes may help reconcile the need of economic agents for legal convergence and homogeneity together with firms’ heterogeneity and local diversity. In this view, a positive side of broad standards is that they are large enough to encompass highly heterogeneous behaviors in their effectiveness area, as by definition they do not impose any precise constraint on agents, but only supply behavioral guidelines. In addition, reliance on the comply-or-explain principle also facilitates firms’ commitment to global corporate governance standards, as they are authorized to deviate from these principles explicitly if they hold them as unsuitable for their own private situation. Hence, the combination of broad standards together with the possibility not to comply and to follow specific rules at the local level instead enables firms to avoid the cost of enforcing codes’ provisions if necessary while taking benefit from the standardization effect associated with common corporate governance principles. Such flexibility obviously encourages the production and dissemination of similar corporate governance standards across different countries.

Yet, it may be costly for local agents (firms) to obey broad corporate governance standards that are too far away from their legal tradition and cut-off from day-to-day practices. Furthermore, a drawback of broad standards is that they are associated with a higher level of legal incompleteness as compared to more precise rules. Such incompleteness is likely to entail future costs for users if they are put in a situation where they have to interpret or clarify the standard and decide upon their own past conduct ex post (Ehrlich and Posner 1974; Landes and Posner 1976; Kaplow 2000). Accordingly, detailed rules may be useful and needed under some circumstances at the local (national) level.

In this setting, standards may thus be preferred when economic agents are characterized by highly heterogeneous practices, while more precise rules may be rather used when agents’ behavior is characterized by important regularities. The combination of standards together with the comply-or-explain principle, their plasticity and the possibility to complement them with more detailed rules

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