Corporate Governance in

Transition
Chapter XIV

Chapter Objectives:
Realize that corporate governance is evolving and the structure varies across
countries,
industries, and companies.
Understand the history of corporate governance.
Identify and list the cross-country factors that differentiate corporate
governance structure
Identify the challenges of the global business and financial markets.
Provide an overview of corporate governance worldwide.
Recognize the initiatives taken during the past decade to improve corporate
governance
worldwide.
Identify the issues to be addressed to promote convergence in global
corporate governance.
Provide an overview of corporate governance issues related to multinational
corporations across different countries.

Key Terms
Information infrastructure
Keiretsu
Legal infrastructure
Market infrastructure
Regulation Fair
Disclosure
UK Financial Reporting
Council (FRC)
U.S. Government
Accountability Office (GAO)
Unitary board

History Perspectives
Concept was introduced by Berle and Means during the time
of the formation of the SEC in 1933.
Early references to the term corporate governance are
documented in a speech by Clifford C. Nelson, the president of
the American Assembly in 1978.
The legal view of corporate governance initially appeared in
the report of ALI in 1984 titled Principles of Corporate
Governance.

Corporate Governance:
Global Perspective
The series of scandals in the United States (ZZZZ Best, Webtech,
Waste Management, Sunbeam, and Cendant), in UK (BCCI, Maxwell,
and Polly Peck and Barings), in Canada (Canadian Commercial Bank
and Caster Holdings and Roman Corporation), in Europe (Credit
Lyonnais, Metalgesellschaft, and Schneider), in Asian countries
during the crisis in 1997 have ensured that corporate governance
interest and reforms
are a global issue and are not confined to the borders of the United
States.
The serangkaian skandal di Amerika Serikat (ZZZZ Terbaik,
Webtech, Penanganan Sampah, Sunbeam, dan Cendant), di Inggris
(BCCI, Maxwell, dan Polly Peck dan Barings), di Kanada (Canadian
Bank Umum dan Caster Holdings dan Romawi Corporation) , di
Eropa (Credit Lyonnais, Metalgesellschaft, dan Schneider), di
negara-negara Asia selama krisis tahun 1997 telah memastikan
bahwa kepentingan tata kelola perusahaan dan reformasi
adalah isu global dan tidak terbatas pada perbatasan Amerika
Serikat.

Corporate Governance in
United States
Best practices of corporate governance in the U.S. suggest that:
1. Investors pay a premium for companies with effective corporate governance.
2. Companies with effective corporate governance and shareholder rights
marginally outperform those companies with weak corporate governance and investor
rights.
3. Companies with effective corporate governance tend to benefit more from
regulations and rules than those with weak governance primarily because of
compliance costs.
4. Effective corporate governance improves market liquidity and reduc
Praktik terbaik tata kelola perusahaan di Amerika Serikat menunjukkan bahwa:
1. Investor membayar premi untuk perusahaan dengan tata kelola perusahaan
yang efektif.
2. Perusahaan dengan hak tata kelola perusahaan dan pemegang saham efektif
sedikit mengungguli perusahaan-perusahaan dengan tata kelola perusahaan dan
investor hak lemah.
3. Perusahaan dengan tata kelola perusahaan yang efektif cenderung
mendapatkan keuntungan lebih dari peraturan dan aturan dibandingkan dengan
pemerintahan yang lemah terutama karena biaya kepatuhan.
4. tata kelola perusahaan yang efektif meningkatkan likuiditas pasar dan
mengurangi volatilitas harga saham.es share price volatility.

Corporate Governance in
the United Kingdom
The Financial Reporting Council (FRC) in the UK released a
revised Combined Code on Corporate Governance.
All companies incorporated in the UK and listed on the LSE
are required to report on whether and how they are applying
the Combined Code.
Companies listed on the LSE must include in their annual
report (1) a narrative statement of how they have applied the
principles of the Combined Code; (2) a statement as to the
extent to which companies have complied during the
reporting period with the provisions of the Combined Code;
and (3) for companies that have not complied with any
provisions of the Combined Code, a report specifying the
Combined Code provisions with which they have not complied,

UK Corporate Governance
vs. U.S. Corporate
Governance
Board U.S.: boards oversight
function separated from
management managerial
function.

Board U.K.: board ,on the

contrary,
Is responsible for the preparation
of financial statements and
internal controls.

CEO: assumes can assume

position as a chairman of the
board

CEO: cannot assume the

position as a chairman of the
board

Approach: less flexible

approach

Approach: more principle

based, which requires companies
to comply or explain why not.

Corporate Governance in Germany

German corporate governance is characterized by the two-tier board of director system, which
creates different rights and obligations for directors of each board as specified in the German
Stock Corporation Act and the German Corporate Governance Code.
Tata kelola perusahaan Jerman ditandai oleh dewan dua-tier sistem direktur, yang menciptakan
hak dan kewajiban yang berbeda untuk masing-masing direksi dewan sebagaimana tercantum
dalam Undang-Undang Jerman Stock Perusahaan dan Jerman Perusahaan Kode Tata.
Two-tier board of directors system consists of the management board and the supervisory board.
Two recent laws, namely, UMAG and KapMuG, were established to promote protection for
German shareholders.
The two laws are intended to enhance shareholder democracy in Germany and provide protection
for investors
Papan dua tingkat dari sistem direksi terdiri dari pengurus dan dewan pengawas.
Dua undang-undang baru, yaitu, Umag dan KapMuG, didirikan untuk mempromosikan
perlindungan bagi pemegang saham Jerman.
Kedua undang-undang ini dimaksudkan untuk meningkatkan demokrasi pemegang saham di
Jerman dan memberikan perlindungan bagi investor

Corporate Governance in Japan

In Japan, the business structure is shaped and business
practice is dominated by networks of organizations called
keiretsu.
The majority of outstanding shares (up to 90 percent) are in
the possession of keiretsu-affiliated financial institutions or
keiretsu-affiliated nonfinancial companies, SO the individual
investors do not have much of a voice in corporate
governance.
In 2006, Japan took several initiatives to improve the
infrastructure of its capital markets , improve the investors
protection, and make the financial statements more
transparent.

Corporate Governance in
Other Countries
1.

2.

3.
4.

5.

Corporate governance worldwide has recently made significant progress.

Corporate governance in Canada. The Joint Committee on Corporate
Governance was established by the Canadian Institute of Chartered Accountants,
the TSX, and the Canadian Venture Exchange. The Committee issued Beyond
Compliance: Building a Governance Culture
Corporate governance in Singapore. The Singapore code of corporate
governance (the Code) was developed in March 2001 by a private sector
committee appointed by the government and the corporate governance
committee, and was issued by the Ministry of Finance in July 2005.
Tata kelola perusahaan di seluruh dunia baru-baru ini membuat kemajuan yang
signifikan.
Tata kelola perusahaan di Kanada. Komite Bersama Corporate Governance
didirikan oleh Canadian Institute of Chartered Accountants, TSX, dan Kanada
Venture Exchange. Komite mengeluarkan "Beyond Kepatuhan: Membangun Budaya
Governance"
Tata kelola perusahaan di Singapura. Singapura kode tata kelola perusahaan
(Kode) dikembangkan Maret 2001 oleh sebuah komite sektor swasta yang ditunjuk
oleh pemerintah dan komite tata kelola perusahaan, dan dikeluarkan oleh
Departemen Keuangan pada bulan Juli 2005.

Convergence in Corporate
Governance
There is no globally accepted set of corporate governance principles
or global regulatory framework that governs corporations, global
financial institutions, or capital markets worldwide. Regulators in the
United States, the SEC, IOSCO, and the World Federation of
Exchanges (WFE) have yet to agree on a global regulatory framework
or a global corporate governance structure.

Tidak ada global set diterima dari prinsip-prinsip tata kelola

perusahaan atau kerangka peraturan global yang mengatur
perusahaan-perusahaan, lembaga-lembaga keuangan global, atau
pasar modal di seluruh dunia. Regulator di Amerika Serikat, SEC,
IOSCO, dan Federasi Dunia Bursa (WFE) belum menyepakati kerangka
peraturan global atau struktur tata kelola perusahaan global.

Convergence in Corporate
Governance
The following issues should be resolved to facilitate global
convergence in corporate governance:
Reconcilable corporate governance principles are:
(1) the majority of directors must be independent,
nonexecutive directors;
(2) members of the audit, compensation, and nomination
committees must be independent;
(3) nonexecutive, independent directors do not receive
compensation or fees other than their director fees;
(4) the audit committee, composed of truly independent
directors, oversees financial reporting, internal controls, and
audit activities;
(5) the audit committee is directly responsible for the
appointment, retention, and compensation of the external
auditor.

Convergence in Corporate
Governance
Isu-isu berikut harus diselesaikan untuk memfasilitasi
konvergensi global dalam tata kelola perusahaan:
Prinsip tata kelola perusahaan dipertemukan adalah:
(1)
mayoritas
direksi
harus,
direktur
non-eksekutif
independen;
(2) anggota audit, kompensasi, dan komite nominasi harus
independen;
(3) non-eksekutif, direktur independen tidak menerima
kompensasi atau biaya selain biaya direktur mereka;
(4) komite audit, yang terdiri dari direksi benar-benar
independen, mengawasi pelaporan keuangan, pengendalian
internal, dan kegiatan audit;
(5) komite audit bertanggung jawab langsung atas
penunjukan, retensi, dan kompensasi dari auditor eksternal.

Corporate Governance In
Multinational Corporations
MNC usually have parent-subsidiary structure.
The parent-subsidiary corporate governance structure is shaped by both the host
and home countries legal, political, cultural, and regulatory systems; the
business practices and historical patterns of countries; the global capital, labor,
and managerial markets; global institutional investors; and the boards of
directors.
When the subsidiary is wholly owned by the parent company and is managed
automatically (independently) by a management who has little if any ownership
interest in the MNC or the subsidiary, then the effectiveness of parent-subsidiary
corporate governance becomes more crucial in monitoring and controlling
managerial actions of the subsidiary.

Conclusion
The corporate governance structure can be differentiated
across countries in terms of the degree of ownership and
control.
Corporate law plays a vital role in corporate governance by
determining how companies are established and in defining
the rights of shareholders and the fiduciary duties of
directors and officers.
For companies listed on the LSE, the UK has established
annual reporting requirements on whether and how they are
complying with the Combined Code.
The German board system is a two-tiered system that
consists of a management board and a supervisory board.
The Japanese business structure is dominated by networks
of organizations called keiretsu that significantly influence
the corporate governance structure in Japan.

Conclusion
Convergence of global corporate governance would be
possible if all nations would agree that the primary purpose of
corporate governance is the enhancement of shareholder
value while protecting the interests of other stakeholders
The most important step in the convergence process is the
statutory power to implement and enforce the globally
accepted corporate governance principles, rules, or best
practices.
In a multinational corporation, corporate governance
mechanisms are designed not only to align the interests of
subsidiaries with those of the parent company, but also to
align the interests of the management of the parent company
with the interests of both its majority and minority
shareholders