Should Asian Firms Adopt American Corporate Governance Frameworks ?

Need for Global Governance Frameworks

The key aspect to note about how global corporate governance has evolved to the point of uniformity is the fact that in addition to global capital demanding global rules, there has been a concomitant movement towards converging corporate governance around the world on the US-led model of governance.

This has been the case with many Asian companies that have not only be prodded and persuaded by Western investors to institute global governance practices but also because there has been a realization among these companies that embracing global norms voluntarily would have made them truly global in nature.

Asian Examples

A case in point is the Indian IT (Information Technology) industry that was at the vanguard of the first and the second waves of globalization in recent decades. The Indian IT companies were among the first in the country to embrace global accounting and reporting as well as disclosure standards that have been inspired by the US model of governance.

Among these companies, Infosys was one of the early adopters, which made the company report its annual results in the US GAP (General Accounting Principles) format as well as in the Indian version. That it did so is a testament of not only the regulatory requirements of being listed on NASDAQ Exchange in the US but also because there was a realization among its senior leadership about the superiority of the Western model of corporate governance notably the provisions of the SOX (Sarbanes Oxley) and the ICGN (International Corporate Governance Network) model.

Looking further east, Sony Corporation in Japan was even earlier in 1997 when it adopted western models of corporate governance, which soon made the Japanese government to institute a Commercial Code that was modeled along the lines of the requirements of SOX, ICGN, and the OECD Rules.

These examples prove the case for an international code of corporate governance and its viability in a market environment where capital, goods, people, and services move freely around the world.

Reasons for Asian Firms to Follow American Governance Models

When there is no uniformity in rules and regulations in such a global marketplace, the situation tends to resemble the Wild West days of Yore wherein each player and stakeholder behaves according to their whims and fancies and each speak a language of their own (literally as well as metaphorically) leading to a virtual “Tower of Babel” where none can understand the others.

Further, the viability of an international code is enhanced when one looks at the recent scandals of poor working conditions in China, the worker unrest in the Apple manufacturing facilities, the Bangladeshi garment workers protesting in a similar manner, and the various controversies surrounding large scale industrial projects in India due to corruption and environmental issues.

Because of these incidents happening in countries that do not subscribe to the same set of corporate governance standards of the West (from where these companies originate and are funded), the managements of these companies pleaded helplessness as local laws and regulations were either lax or poorly implemented and enforced.

This led to a renewed push for uniform corporate governance standards that is international in scope and uniform in nature. Indeed, as mentioned earlier, there were also calls for a Glocal approach to the problems wherein global corporations prod and persuade the regional governments to adopt some uniform rules and at the same time apply them to local conditions so that neither side can claim that the other does not understand their respective positions on the issue.

Reasons against Asian Firms Following American Governance Models

The discussion so far has made a strong case for an international code of corporate governance and has stressed its viability. However, despite these points, there still exist many alternative perspectives and viewpoints that scoff at the feasibility of such a code.

For instance, many experts believe that due to a mixture of historical, cultural, social, political, and economic reasons, nations, and companies would continue to operate according to local conditions and resist pressures to conform to an international code.

Further, because of the differing corporate landscapes in each country, which means that patterns of shareholdings, structure of family owned businesses, and the traditional emphasis on nationalistic sentiments holding sway and resisting change, some experts believe that we are far from a uniform and international code of corporate governance. Even more, these experts call into question the viability of such a code given these reasons.

For instance, it is common for US companies to have a large and diversified shareholder base where banks, institutional shareholders, governments, and other interests have marginal stakes and the majority of shareholders follow a pattern where unless there is a significant bloc of them, the combined stakes would still not be as comparable to that of those in Asia.

It is common for boards in Asia to have institutional, governmental, and bank representation because these interests control many companies through cross holding and other aspects.

Moreover, this system is somewhat in tune with the nature of the industry and the corporate landscape in these countries, which need large boards and enough representation to all the key players for political as well as social reasons.

Therefore, there is little incentive for these companies to abandon a system that has worked so well for them in favor of a system that is modeled along the boards in the US where diversified shareholding is the norm.


Perhaps the most important reason why many companies worldwide are reluctant to converge on the US model, which by implication can lead to an international code that is uniform, is the fact that in recent years, the skeletons have started tumbling out of the closets of the US companies.

This means that in the same manner in which there is a global pushback against US led efforts to forge a New World Order which many decry as evidence of the country’s double standards and hypocrisy, many corporates around the world similarly view such homogenization of corporate governance as neo-imperialism or a rather weak attempt to achieve hegemony at a time when the chickens are indeed coming home to roost.

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Corporate Governance