Corporate governance codes across the world

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Corporate governance codes across the world have constantly changed due to the various experiences in different countries. In Europe, in particular, corporate governance has always responded to changes in the market and even other factors such as corporate scandals1. The fall of Enron, which had been described as one of Americas’ most vibrant company, also promoted European countries to re-think about their corporate governance practices even though the scandal happened in America2. This is because European economies are closely related to the American economy given the fact that America is one of Europe’s greatest trading partners. Other scandals that occurred in Europe also promoted changes in corporate governance. The four countries named that is France, Italy, Denmark and Germany have also had a change in their corporate governance codes. Although not all experienced massive corporate scandals the fall of giant corporations and other forces were responsible for the changes being made3.

In France, for instance, most of the companies were state owned in the early 90s. The state still owns part of the companies; however, private ownership has soured. In order to promote investor confidence, there was need to transform4. This was in order to reassure the investors that their investments in shares were safe5. In Italy, the Parmalat scandal, which rocked the economy also led to a change in the corporate governance codes. This was meant to prevent such a situation from happening again. In Denmark and Germany where the codes are similar in a way, corporate governance transformations were prompted by the need to modernise them and improve efficiency in corporations6.

The main differences among the corporate governance codes in the four countries can be observed in terms of the board structures in the companies. In France, for instance, companies have an option of adopting the two-tier or the unitary board7. In Germany, companies adopt the two-tier board. In Italy they have three options that is the unitary board, the two-tier board and the French traditional board of directors. Lastly, in the case of Denmark, companies have an option if adopting the two-tier board or the unitary board. The other difference that can be observed in the involvement of employees in the board of directors. In Germany and Denmark this is common. In the other communities, it is optional8.

In my opinion, corporate governance practices are converging. This is following the growing need to conform to the best standards that have been identified. Among the changes being observed in these countries include an extension of the shareholders rights and a prescription of the responsibilities of shareholders. This is in order to promote better supervision and corporate decisions9. There is also need to develop transparency in companies to win investor confidence and avert corporate failures. In order to do this, measures such as adoption of audit committees and standard ways of financial reporting have been embraced. There is also need to change the composition of the board of directors with many countries opting for outsider controlled boards and committees10. There is also need to have chief executives of companies and the chairmen of boards as separate persons. This helps to promote transparency and avert incidences of conflict of interests11. All these are positive transformations brought about by convergence.