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The ethics of corporate Global

convergence or
governance divergence?
Global convergence or divergence?
G.J. Rossouw 43
Philosophy Department, University of Pretoria, Pretoria, South Africa
Abstract
Purpose – The purpose of this paper is to investigate whether there is a global divergence or
convergence with regard to the ethics of corporate governance.
Design/methodology/approach – Regional perspectives on the ethics of corporate governance
from four regions, namely, Africa, Asia, Continental Europe and North America are first briefly
introduced and characterized in terms of distinctions between the ethics of governance and the
governance of ethics, internal and external corporate governance, and shareholder and stakeholder
orientations to corporate governance. Thereafter these regional perspectives are compared in order to
determine whether there is a global divergence or convergence with regard to the ethics of corporate
governance amongst these four regions of the world.
Findings – There are four factors that potentially may have an impact on the ethics of corporate
governance, namely, patterns of ownership, the prevailing view of the role of the firm in a society,
cultural and societal norms, and socio-political priorities. The influence of these factors makes a
global convergence on the ethics of corporate governance neither likely nor desirable.
Research limitations/implications – Not all regions of the world were included in this
comparative study. Regions that need to be included in future studies are Latin America, Central Asia
and the Middle East.
Practical implications – The main finding, namely, that a global convergence on the ethics of
corporate governance is neither likely nor desirable, should be taken into consideration by promoters
of global corporate governance standards.
Originality/value – Based on regional perspectives from Africa, Asia, Continental Europe and North
America, the paper provides a global perspective on the question of whether there is global divergence or
convergence with regard to the ethics of corporate governance amongst these four regions of the world.
Keywords Corporate governance, Business ethics, Africa, Asia, Europe, North America
Paper type General review

1. Introduction
The four regional perspectives presented in the previous four articles display a rich
variety that demonstrates that there is no dull homogeneity on the global corporate
governance landscape. To the contrary there are a rich variety of factors that influence
and shape the formal and informal contours of corporate governance regimes in
different regions of the world.
In concluding this special issue, a brief characterization of the four regional
perspectives in terms of the distinctions introduced in the first article in this issue (The
ethics of corporate governance: crucial distinctions for global comparisons) will first be
given. Then the question about whether there is a global convergence or divergence
with regard to the ethics of corporate governance will be introduced. Based on the four
regional perspectives presented in this issue, some conclusions with regard to the
convergence-divergence debate will be drawn. International Journal of Law and
Management
Vol. 51 No. 1, 2009
2. Regional perspectives on the ethics of corporate governance pp. 43-51
In the first paper in this special issue a number of distinctions were introduced that are # Emerald Group Publishing Limited
1754-243X
helpful in making comparisons on a global scale when dealing specifically with the DOI 10.1108/17542430910936673
IJLMA ethical dimension of corporate governance. The three distinctions that were introduced
were the ones between: the ethics of governance and the governance of ethics; internal
51,1 and external corporate governance; and shareholder and stakeholder orientations to
corporate governance. When these distinctions are applied to the four regional
perspectives the following picture emerges.
In the North American perspective, Stephen Young paints a picture of a corporate
governance landscape where the ethics of corporate governance is coloured by a strong
44 shareholder orientation, with the expectation that other stakeholders will indirectly
benefit from the active pursuit of shareholder interests. This prioritization of
shareholder interests is protected and reinforced on the external corporate governance
level by corporate law and financial regulation, but also by an active market for
corporate control via take-overs and acquisitions. On the internal corporate
governance level this corporate governance regime tends to treat stakeholder interests
in an instrumental manner, i.e. the interests of non-shareholding stakeholders are
mainly perceived and treated according to how they strategically impact on the best
financial interests of shareholders.
Across the Atlantic, Peter Koslowski paints a picture of corporate governance in
Continental Europe mainly as perceived through the looking glass of the co-
determination corporate governance dispensation in Germany. A view of a corporate
governance regime unfolds that is more orientated towards a stakeholder approach, in
the sense that employees are also included in the internal governance process. The two-
tier board system provides workers of corporations with the opportunity to present
their views on the second board (or advisory board) level. This somewhat more
stakeholder orientation is supported on both the external corporate governance level
through corporate laws and regulation, but also on the internal corporate governance
level through the participation of employee representatives in the decision-making
structures of firms. Although the opportunity for external governance through the
market for corporate control remains an option, it is much less active and effective than
in the USA. An image of the firm thus emerges in which not only the interests of
shareholders are pursued and protected, but where at least the interest of employees
enjoy formal recognition in the board-structures and decision-making processes of
companies.
From the East, YKR Reddy presents a view of corporate governance in Asia (more
specifically South and South East Asia) in which an ethic of corporate governance
comes to the fore that he labels as ‘‘expansive’’. This expansive ethic represents a mid-
position between a shareholder approach and a stakeholder approach to corporate
governance. Reddy emphasises that it is not a trade-off between the two approaches,
but rather a synthesis between shareholder and stakeholder interests. Part of the
explanation for the lesser prominence of shareholder concerns is that many enterprises
in Asia are either state-owned or small and medium enterprises where shareholder
concerns are less eminent. Informal external corporate governance through societal
norms, practices and values are often more influential than the formal external
corporate governance mechanisms of laws and regulations. These societal norms,
practices and values find expression in a relationship-based form of corporate
governance. Consequently internal corporate governance plays an important role in
the sense that boards and managements of companies adhere to these societal norms in
corporate decisions and actions. A further reason for the importance of internal
corporate governance is that corporate governance standards in Asia often take the
form of voluntary corporate governance codes (such as, for example, the OECD
Principles of Corporate Governance) that are applied in companies in a self-regulatory Global
and voluntary manner.
In the only perspective from the Southern hemisphere, Andrew West provides a
convergence or
South African perspective on the ethics of corporate governance, while also referring divergence?
to the ethics of corporate governance in some other countries on the continent. In South
Africa an inclusive ethic of governance is prevailing. The same inclusive approach to
corporate governance is also being followed by all African countries who have issued
codes of corporate governance (with the exception of Nigeria). The inclusive approach
45
to corporate governance signifies an explicit commitment to serve both the interests of
shareholders and other non-shareholding stakeholders. This commitment to a
stakeholder approach to corporate governance is partly informed by African values
that emphasises the importance of community, coexistence and inclusion, partly by a
strong developmental agenda on the African continent from which business is not
excluded, and partly from the strong presence of state owned enterprises that pursue
both social and economic objectives. Since external corporate governance regimes are
generally poorly developed and exercised on the African continent, there is a strong
reliance on internal corporate governance. National codes of best corporate governance
practice are issued and companies are expected to apply these standards on a comply-
or-explain basis. A significant number of these codes of corporate governance also
explicitly address the governance of ethics.
Against the backdrop of the above characterization of the corporate governance
regimes in North America, Continental Europe, Asia and Africa, we will now turn to
the question whether there is divergence or convergence with regard to the ethics of
corporate governance amongst these four regions of the world.

3. The convergence-divergence debate

Hansmann and Kraakman (2001, p. 439) made a provocative contribution to the
convergence-divergence debate when they claimed in an article titled, ‘‘The end of
history of corporate law’’, that the world is converging towards a ‘‘shareholder-centered
ideology of corporate law’’. They were not alone in this assessment. Other scholars, like
Reed (2002, p. 243), Garrett (2004, p. 148) and to some degree also Coffee (1999, p. 707),
supported this convergence thesis. Not all, however, are convinced that the world is
moving towards an ethic of corporate governance where the interest of shareholders
will dominate. Several factors that militate against such a global convergence towards
a shareholder-centred ethic of corporate governance have been identified. Branson
(2001), for example cautions against the idea of a global convergence in corporate
governance by pointing to the significant role that cultural values play in corporate
governance in different regions of the world. Bebchuk and Roe (1999, p. 168-9) have
earlier voiced a similar sentiment by also pointing to the definitive role played not only
by cultural values, but also by political ideologies (1999, p. 137). Recently Rossouw
(2008) also cautioned that, on the basis of his global comparative analysis of corporate
governance practices, there is no conclusive evidence that there is a convergence
towards a shareholder-centred ethics of corporate governance.
The clashing views in the convergence–divergence debate in the scholarly discourse
on comparative corporate governance are also reflected in the regional perspectives
that were offered in the preceding four articles. While Young believes that there is
indeed a convergence towards the North American shareholder-orientated approach,
Koslowski denies such a convergence and rather expresses the hope for a synthesis
between the North American shareholder approach and the Continental European
IJLMA employee participation approach. Reddy, on the other hand warns that one should not
be to easily misled by an apparent convergence towards a shareholder primacy
51,1 approach in Asia. A deeper analysis of the Asian context reveals that while the
shareholder primacy view might be officially endorsed in voluntary corporate
governance codes either under the influence of global financial and economic
institutions like the World Bank or the OECD, or because such endorsement might give
Asian companies access to investment capital in shareholder dominated markets, the
46 real corporate governance practice within companies tells a different, much more
relationship based and stakeholder orientated story. West, in his African perspective
also points out that the socio-political agenda of economic development in combination
with society-centred African values diverge from the shareholder orientated approach.
Despite this apparent divergence from the Anglo-American shareholder primacy he,
however, draws attention to the fact that board structures and corporate governance
agendas nevertheless remain very Anglo-American in character.

4. Converging and diverging factors

An analysis of the four regional perspectives makes it clear that the ethics of corporate
governance is influenced by a number of factors, such as patterns of ownership, the
prevailing view of the role of the firm in a society, cultural and societal norms, and
socio-political priorities. The fact that a specific kind of ethics of governance prevails in
a given region is thus not so much an indication of its superiority as contenders for
convergence tend to argue, but rather an indication of its fit with the above mentioned
factors. Each of these factors that potentially may have an impact on the ethics of
corporate governance will be discussed below.

4.1 Patterns of ownership

The first factor that has a direct bearing on the ethics of governance that prevails in a
region, is corporate ownership patterns. In this regard the distinction between insider
and outsider systems of ownership is relevant. Insider systems of corporate
governance refers to dispensations where there are strong concentrations of either or
both state and family ownership, and where these owners exercise their ownership
rights by intervening directly in how the enterprise is being run. Such insider systems
rely more on debt than on equity. Minority owners consequently enjoy very little
protection and are at the mercy of majority shareholders. In outsider systems, to the
contrary, widely dispersed ownership prevails, the interest of both majority and
minority shareholders enjoy priority, companies rely on equity rather than debt to
finance their operations, and there tends to be an active market for corporate control
(cf. Ryan, 2005, p. 42).
Analysing the regional perspectives presented in the preceding articles, it is clear
that insider systems would tend to favour a more stakeholder orientated ethic of
corporate governance, whilst outsider systems would favour a shareholder orientated
ethic of corporate governance. The North American corporate governance
dispensation (or rather more correctly the USA perspective[1] ) as presented by
Young[2] is a typical example of an outsider system. In fact, in her portrayal of the USA
corporate governance regime, Ryan described it as a ‘‘quintessential outsider system’’
(2005, p. 55). In this type of outsider system, the interest of shareholders are given the
highest priority in corporate decision-making and the interests of other stakeholders
are prioritized (or neglected) according to the impact that they potentially might have
on shareholder interests. Stakeholder interests that are protected by law and human
rights obviously need to be respected by companies, but beyond that, the interests of Global
stakeholders enjoy strategic (or instrumental) status, but not normative status.
In insider systems of corporate governance, to the contrary, a stakeholder ethic of
convergence or
corporate governance tends to prevail. In corporate governance regimes with either divergence?
concentrated family ownership or a strong prevalence of state ownership, interests
other than mere shareholder interests tend to play a role. In family owned businesses
the interests of the broader family and community and often also of employees are
given higher priority, leading to a form of benign paternalism that Reddy[3] referred to
47
in his Asian perspective. In the case of state-owned enterprises the agenda of the state
as a major or dominant shareholder also exceeds the narrow confines of shareholder
interests and extends to the welfare of the society, which obviously includes a wider
range of stakeholders. West[4] confirms this reality in his African perspective on the
ethics of Governance by emphasising the intervention of the state in corporate affairs
for the sake of socio-economic development or reconstruction (also see Rossouw, 2005,
p. 96).

4.2 View of the firm

The view that prevails in a society (or region) on what role business enterprises are
supposed (or expected) to play, has a very distinct impact on the ethics of corporate
governance that will reign in that society (or region). In the scholarly discourse on the
role of the firm in society a variety of views of the firm are mentioned. Collier and
Robberts (2001, p. 67), for example, distinguishes between corporations as a set of
ownership rights and corporations as social institutions, Wieland (2005, p. 78-81)
between the agency theory, the transaction cost theory and the organization theory of
the firm, and Kimber and Lipton (2005, p. 182-3) between the contractarian and the
communitarian view of the company. In his presentation of the Continental European
perspective on the ethics of corporate governance Koslowksi[5] distinguishes between
mono-purpose and multi-purpose conceptions of the firm.
What matters in the above array of distinctions is that some views of the firm
portray companies as vehicles merely for maximizing shareholder value, (e.g. Collier
and Roberts’s notion of the firm as a set of ownership rights, Wieland’s notion of the
agency theory of the firm, Kimber and Lipton notion of the contractarian view of the
firm, and Koslowski’s notion of the mono-purpose view). When the view of the firm
that dominates thinking about the role of corporations in society prioritizes the
interests of shareholders, a shareholder ethic of governance can be expected to be
adhered to in that society. If, however, the role of the firm in society is understood
differently (for example as in Collier and Roberts’s notion of the firm as social
institution, Wieland’s notion of transaction cost and organization theories of the firm,
Kimber and Lipton notion of the communitarian view of the firm, and Koslowski’s
notion of the multi-purpose firm), it is likely that a broader stakeholder ethic of
governance will prevail.
This expectation is confirmed by an analysis of the four regional perspectives
described above. Young makes it clear that in the USA the purpose of the firm is
perceived as pursuing the financial interests of shareholders and thus the USA is
strongly associated with a shareholder ethic of corporate governance. Koslowski, in
contrast, argues that in at least certain parts of Continental Europe a conception of the
firm as a multi-purpose institution prevails. Such multi-purpose conceptions implies
that firms are obliged to deal with a variety of stakeholder concerns and interests and
thus a stakeholder ethic of corporate governance is associated with most European
IJLMA states (also see Wieland, 2005, p. 83). Reddy contends that a similar broader view of the
firm holds sway in Asia (also see Kimber and Lipton, 2005) and West acknowledges
51,1 that corporations in Africa also pursue wider corporate agendas in the inclusive
corporate governance approach (also see Rossouw, 2005). As a result a leaning towards
a stakeholder ethic of corporate governance is discernable in both the Asian and
African perspectives on the ethics of corporate governance.
48 4.3 Cultural and societal norms
In the introductory paper to this special issue[6] it was indicated that on the level of
external corporate governance, societal norms can influence corporate behaviour in an
informal manner. Not only corporate governance practices, but also the ethics of
corporate governance are being shaped by the ethical values, standards and practices
of the societies within which corporations operate. It is exactly for this reason that it is
widely recognized that a one-size-fits-all approach for corporate governance does not
make sense (cf. Branson, 2001; OECD, 2004). For a corporate governance system to be
effective it needs to be appropriated by both the business community and the society in
which it is located. Consequently, corporate governance on both the external and
internal level needs to be sufficiently aligned with the cultural and societal norms
within which a particular corporate governance regime is situated.
Corporate governance regimes that are located in contexts where cultural and
societal norms promote communal well-being are more likely to support a stakeholder
ethic of corporate governance, whilst societies where individual rights and personal
autonomy are paramount would be more likely to support a shareholder ethic of
corporate governance. This hypothesis finds support in the Asian and African
perspectives discussed above. In his Asian perspective on the ethics of corporate
governance Reddy refers to ‘‘balancing and harmonising of relationships’’ as the ‘‘heart
of Asian tradition’’[7]. West, in the African perspective that he offers, mentions the
influence of African values such as ‘‘ubuntu’’ on the African ethic of corporate
governance. The stakeholder orientation of corporate governance in both Asia and
Africa can thus be partly attributed to the more communitarian cultural and societal
norms that are common to these regions.
The interesting exception to this hypothesis seems to be Continental Europe, which
is strongly associated with the modernist ideas of individualism and personal
autonomy, but where we nevertheless find a stakeholder ethic of governance in the
majority of European countries. In his analysis of the ethics of corporate governance,
Wieland (2005, p. 83) found that 15 out of the 22 countries included in his survey
displayed a leaning towards as stakeholder ethic rather than towards as shareholder
ethic. If one takes into account that Continental Europe tends to subscribe to social
democracy rather than to liberal democracy as is the case in the USA, this discrepancy
starts to dissipate. When we add Continental Europe’s strong tradition of implicit
corporate social responsibility (cf. Matten and Moon, 2008) to the mix, its stakeholder
ethic of corporate governance makes even more sense.

4.4 Socio-political priorities

As the economy of any region is always embedded in a wider socio-political context, it
is to be expected that priorities in the socio-political context will also impact on
corporate governance and the ethics thereof. Especially within the context of
developing and transitional economies, corporations are expected to play their part in
processes of development and transition. This inevitably results in companies having
to consider wider interest than merely those of their shareholders, which in turn Global
facilitates a more stakeholder orientated ethic of corporate governance. In developed
economies there are less pressure on corporations to be active participants in socio-
convergence or
political processes, although they are nevertheless expected to shoulder their fair share divergence?
of social responsibilities. In the case of developed economies it is primarily the
prevailing view of the role and responsibilities of the firm that will determine the
extent to which corporations would focus merely on shareholder interests or move
beyond that towards a stakeholder ethic of corporate governance.
49
In the regional perspectives on the ethics of corporate governance this hypothesis
finds first of all support in Reddy’s rendering of the Asian perspective, where he
indicates that the prominence of state owned enterprises in Asian economies inevitably
leads to a stakeholder orientation in corporate governance. Whenever the state takes a
stake in enterprises, it is to be expected that the state’s socio-political priorities will
influence the corporate agenda and move it beyond mere shareholder interest concerns.
This reality is confirmed in the African perspective on corporate governance as West
also indicates that the need for socio-political reform in order to deal with the legacy of
apartheid in South Africa, and post-colonial development in other African states,
results in corporations having to contribute and play a part in socio-political reform
and development. The fact that the North American and Continental European
perspectives do not mention the role of corporations in socio-economic reforms
confirms that pressure on corporations to get actively involved in promoting the
interests of non-shareholding stakeholders is much less than in developing countries.
This of course, does not preclude the possibility that a stakeholder orientation in
developed countries might emanate from other factors such as, for example, societal
expectation about the responsibilities of corporations in society – as has been
demonstrated above in the case of Continental Europe. The financial crisis of 2008 (that
is playing itself out at the time of writing this article) has the potential of compelling
corporations in developed economies to accommodate socio-economic priorities in their
corporate agendas and thus to change the architecture of developed economies and
their corresponding systems of corporate governance. Whether this possibility will
indeed materialise, only time will tell.

5. Conclusion
The regional perspectives on the ethics of corporate governance offered in this special
journal issue was generated in response to the question whether there is an underlying
ethic of corporate governance that is gaining the upper hand on a global scale, or
whether there is a global divergence in this regard. An analysis of the perspectives
offered from Africa, Asia, Continental Europe and North America, made it clear that
there is divergence rather than convergence. Expectations of a global convergence
towards either a ‘‘shareholder centered ideology’’, as Hansmann and Kraakman (2001,
p. 439) predicted cannot be supported on the basis of the regional perspectives on the
ethics of corporate governance offered in this special journal issue. Nor does it find
support in other recent studies on the ethics of corporate governance (cf. Rossouw and
Sison, 2006; Rossouw, 2008). The divergence that prevails should, however, not be
regarded as a sign of immaturity of the field of corporate governance, nor as an
indication that confusion prevails in international corporate governance. The
divergence should rather be appreciated as an indication that corporate governance
and the underpinning ethics thereof are influenced by a variety of factors that are
context-specific such as patterns of ownership, the prevailing view of the role of the
IJLMA firm in a society, cultural and societal norms, and socio-economic priorities. Bransons
51,1 verdict that significant cultural and contextual differences between nations and
regions not only make the idea of convergence unlikely, but also unwanted, still
remains worthy of serious consideration (cf. Branson, 2001, pp. 324-7).

Notes
50 1. In her analysis of the ethics of corporate governance in North America, where she
compared the situation between Mexico, USA and Canada, Ryan (2005) identified
significant differences between the corporate governance dispensations of the USA and
Canada that Young tend to gloss over in his North American perspective.
2. Cf. The Ethics of Corporate Governance: The North American Perspective, in this special
issue.
3. Cf. The Ethics of Corporate Governance: An Asian Perspective, in this special issue.
4. Cf. The Ethics of Corporate Governance: An African Perspective, in this special issue.
5. Cf. The Ethics of Corporate Governance: A Continental European Perspective, in this
special issue. Wieland (2005) draws a number of finer distinctions with regard to the
corporate governance regimes in Europe that is not reflected in Koslowski’s Continental
European perspective.
6. Cf. Rossouw, The Ethics of Corporate Governance: Crucial Distinctions for Global
Comparisons.
7. Cf. The Ethics of Corporate Governance: An Asian Perspective, in this special issue.

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About the author

G.J. (Deon) Rossouw is Professor and Head of the Philosophy Department, and Director of the
Centre for Business and Professional Ethics at the University of Pretoria, South Africa.
G.J. Rossouw can be contacted at: deon.rossouw@up.ac.za

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