European Business Environment

Essay title: 

Corporate Governance

Delivered by: 

Daniel Wülbern

Oxford, 27. January 2003

Content

1. Executive Summary  2

2. Definition of Corporate Governance  2
The OECD Principles of Corporate Governance  2

3. Importance of Corporate Governance  4
Why do corporations and nations need corporate governance?  4

4. The Driving Forces of Corporate Governance  5
The Growing interest for corporate governance  6

5. National Differences and recent developments  7
Corporate governance system in Germany and in the UK  8
Anglo-American Influence  8

6. Corporate governance in developing countries  9
Where the need comes from  9
What to do?  9
General challenges  10

7. Conclusion  11

8. Appendix  11
Case Study: Thailand as an example for successfully adapting corporate governance systems  11

9. Bibliography  13

1. Executive Summary

This essay describes the problematic of corporate governance systems, which, if they are weak, distort the efficient allocation of resources, undermine opportunities on a level playing field and, ultimately, hinder investment and economic development. Recent high profile scandals, financial crises and institutional failures in Russia, Asia and the United States have brought corporate governance issues to the fore in modern western, as well as developing countries, transitional economies, and emerging markets. Firstly, I will give a definition of corporate governance and introduce the OECD Principles, which are the foundation of all corporate governance systems. Secondly, I discuss the driving forces and the importance of corporate governance. I will then concentrate on national differences and recent developments, where I am particularly looking at the UK and Germany. A special chapter about the Anglo-American influence follows and leads to the last chapter, which covers the current situation and possible future effects of applied corporate governance systems in developing and transitional countries.

The purpose of this paper is not to go deep into legal details of corporate governance, but reveal its importance for society (stakeholder), economy (corporations and capital markets) and future development of emerging market economies.

2. Definition of Corporate Governance

During my research I found many definitions of corporate governance. The IMF defines it very succinct: “Corporate governance refers to the framework of rules and regulations that enable the stakeholders to exercise appropriate oversight of a company to maximize its value and to obtain a return on their holdings.”

The corporate governance movement started roughly 15 years ago and was spearheaded by the World Trade Organization (WTO). The main aim was to help companies grow across borders by persuading investors and creditors that they can confidently invest in their country. However, this development got significantly more momentum when the OECD introduced international corporate governance principles nearly 4 years ago now.

The OECD Principles of Corporate Governance ¹

These principles, based on the Milstein Report2, where endorsed in may 1999 by 29 OECD member nations. They represent the first inter-governmental accord on the common elements of effective corporate governance. The four core principles are:

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1 The principles are available in full text at www.oecd.org/