Globalisation and Convergence in Corporate Governance

November 2001

Speaker:

Professor Tarun Khanna, Harvard Business School

Some scholars have argued that globalization should pressure firms to adopt a common set of the most efficient corporate governance practices. Others maintain that such convergence will not occur because of a variety of forms of path-dependence. With hitherto unused data from twenty-four developing countries and thirteen European countries, this study searched for evidence that globalization is correlated with convergence of corporate governance. "Convergence in form" is distinguished from "convergence in function," and de jure from de facto convergence.

Robust evidence of de jure convergence in form was found at the country level. Interestingly, this is not driven by convergence to U.S. standards. Rather pairs of economically interdependent countries appear to adopt common corporate governance standards. In contrast to the de jure results, virtually no evidence was found of de facto convergence in corporate governance in form or function in a battery of estimations at the country, industry and firm levels. This is consistent with either of the following propositions:

That complementarities result in different national systems appropriately having different corporate governance systems
That globalization is not strong enough to overcome local vested interests.

It is concluded that globalization may have induced the adoption of some common corporate governance standards, but that there is little evidence that these standards have been implemented.

Professor Tarun Khanna has taught in the Globalization and Convergence in Corporate Governance, Competition and Strategy Area at HBS since 1993. His current research focuses on understanding the scope of firms' activities. In particular, he is studying the corporate strategy of diversified business groups in several emerging economies in South and East Asia and Latin America. A related project examines the structuring and management of collaborative arrangements (joint ventures, licensing agreements) among firms, and the role that these play within the overall corporate strategy.

Panelists:

David Hoare, Bankers Trust
Tanri Abeng, Executive Center for Global Leadership

Resources:

Overhead – “Organisation, Governance and Growth”