2호 (2008년 2월 Issue 1)

From Knowledge at Wharton
In Germany, labor unions traditionally have had seats on corporate boards. At Japanese firms, dozens of loyal managers cap off careers with a stint in the boardroom. Founding families hold sway on Indian corporate boards. And in China, Communist Party officials are corporate board fixtures.
Just as different nations have developed languages, foods and local customs, they also have adapted their own forms of corporate governance and board structures. Now, as business continues to globalize, new pressure from international capital pools and government regulators may diminish the local and national flavor of corporate boards.
As a result of new technology and liberalization of government controls on capital flows, massive pools of investment can move in and out of countries more freely than ever before. Companies that globalize operations or ownership know that adoption of internationally accepted governance standards would help them compete against other firms, argues Wharton management professor Michael Useem.
Perhaps the central focus of corporate governance is the structure of the corporate board. In general, according to Useem, firms are moving to create boards that are more independent from management, populated by non-executive members and organized around committees overseeing management, compensation and auditing.
In the next 15 years, Useem predicts, corporate boards around the world will move toward a model in which boards typically have 10 to 15 members and three or four major committees.
Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, points to the International Corporate Governance Network (ICGN), whose members control $10 trillion in assets. "They are large pension funds in the world and they have a common interest in creating boards that are independent of management and that act as an appropriate monitor of investor interaction."
One force driving convergence is regulation. Following the passage of the Sarbanes-Oxley Act of 2002 in the United States, other countries enacted similar regulatory provisions that also focus on some of the key elements of board structure and overall governance.
In 2002, Japan enacted a new provision of its Commercial Code allowing boards to establish committees that include outside directors to provide more independent monitoring of management. Traditionally, Japanese boards were subject to oversight by statutory auditors appointed by executive managers.
India, too, has taken steps to increase the independence of its board members with a provision known as Clause 49 of the country's listing agreements. The clause states that half of all directors must be independent.
Wharton management professor Mauro Guillen says that despite new regulatory codes and well-meaning attempts at initiating good governance practices, he is not sure worldwide convergence on one model is inevitable.
He stresses that nations and companies will continue to exhibit local characteristics because different countries have followed varying patterns of economic development. A complex mix of historic, legal, political and economic factors shapes each nation's corporate landscape. As a result, corporate governance and board structures vary around the world.
"The whole idea that we would be better off in a flat world, a homogeneous world, is not going to happen because that's not the way the world works," Guillen says. "But even from the point of view of investors, it's not clear at all that they would like that."
Investors thrive on differences that are reflected in the balance between risk and return. Some want low-risk secure investments while others may be drawn to higher-risk companies with a greater potential to pay off big. "What investors want," says Guillen, "is for the rules to stay the same, not change unexpectedly."
Wharton management professor Marshall Meyer says Sarbanes-Oxley has been a force in setting global standards for governance, although that may be changing.
In China, corporate boards typically have 12 or 13 members, including three outside directors. However, Meyer says boards have a different role in China than in the United States. Typically, Chinese business organizations are built on a subsidiary system with "parent" firms having many children, grandchildren and even great-grandchildren. Often, the parent does not have a board because it is fully state-owned, but the other companies in the network have their own boards, although individual members are often the same.
Independent directors in China typically bring some kind of professional expertise, such as accountants, lawyers or professors, Meyer adds. These directors help with technical issues, but are not expected to provide strong strategic or management direction the way an outside director would at a U.S. firm.
In other parts of the developing world, institutions such as the World Bank and the International Monetary Fund, which provide financing for emerging economies, have attempted to initiate governance reforms, particularly in protections for creditors, according to Jay Lorsch, professor of human relations at the Harvard Business School.
Strong controlling families still dominate companies in many of these countries, he adds. "Whether they are interested in corporate governance in a particular country or not depends on the financial interests of these investors."
"The international investment community is the force that would drive convergence if it happens," says Wharton management professor Peter Cappelli. "Companies that want that money will have to play by their rules. So the question will be: How much commonality will they want across systems of governance?"
"My guess is that they want the same outcome around the world, which is transparency with respect to finances," he says. "As long as they get that, exactly how it occurs is less important. Different national practices can still exist if they provide acceptable levels of transparency."
Useem, too, says it is not so much the path to transparency that matters, but that companies and countries protect shareholders and generate higher returns over time. Even small steps that lead to marginal improvement could have an important impact on the global economy. "Over millions and millions of shares, that can make a difference. If hundreds of thousands of companies become just a little better governed and a little higher performing, the world would be a better place."
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