Why the Need of the Hour is a Uniform International Corporate Governance Code

In recent years, global investors have come to believe that they may have to follow different rules in different countries. Of course, the implicit assumption here is that they are fine with separate reporting, board structures, and laws governing shareholding and equity control as long as the rules do not change abruptly. In this article, however, we try to make the case for a uniform international corporate governance code.

With the globalisation of the world economy beginning in the 1970s, continuing through the 1980s, and accelerating since the 1990s, reaching its apex in the first decade of the new millennium, there has been a concurrent trend of global corporations expanding their international footprint and operating in multiple countries around the world. This meant they had to deal with a tangle of regulations, laws, and procedures that differed from country to country.

Because corporate governance codes in the West (particularly the United States and Europe) were deep, structured, and comprehensive in comparison to those elsewhere, which were still evolving, global corporations had to deal with different yardsticks in regional and country specific terms.

However, given the prevalence of bribery and corruption in the Third World, global corporations could claim that they were not violating any laws or rules in their home countries. Instead, in the rest of the world, where corporate governance had yet to evolve or regulation was lax, they could resort to underhanded dealing. This situation was exacerbated by the fact that there have been numerous corporate scandals in the last two decades arising from corporate mismanagement and malfeasance at companies, as well as instances of dubious practises revealed in the aftermath of the Great Recession of 2008. These brought the spotlight squarely on the activities of global corporations all over the world, prompting regulators and activists to call for global corporations to be subjected to a uniform and consistent corporate governance standard all over the world.

It should also be noted that unless global corporations are governed by an international corporate governance code, they are more likely to succumb to the temptation to cut corners in areas of the world where regulation is lax. Furthermore, they would have to follow purely local rules and regulations, which could impede their smooth operation. Aside from that, the increasing frequency of corporate scandals means that shareholders, in addition to broader societal stakeholders, stand to lose the most, and thus there is a need to make global corporations adhere to the same standards that they follow at home.

As a result, an international code of corporate governance really is the need of the hour. This means that global corporations must think globally while acting locally, which means they must be Glocal in their approach. Global corporations will be required to follow global rules and regulations, as well as adapt and adjust to local rules and regulations in a Glocal manner, increasing the viability of an international code. The board of directors and the structure of the corporate board are the central focus of corporate governance in any country. As a result, when international investors invest in, say, an Italian or Lithuanian company, they must be convinced that the respective boards are adhering to global corporate governance codes.

Just as globalisation ensures a creative dialogue between East and West and leads to a meeting point, corporates around the world can make strides toward actualization of global norms adapted to local conditions, resulting in a win-win situation for both. The driving force for any international code must come from the borderless characteristics of global capital, which seeks the highest returns for the lowest costs and emphasises efficiency and productivity. In other words, by ensuring that markets do their best when confronted with a problem, capitalism can find a way forward that will solve the problem of disparities in corporate governance standards around the world.

So far, the debate has focused on both sides of the question of whether an international code of corporate governance is feasible. The key themes and insights that have animated the discussion point to the fact that as long as there are different cultures, there will be diversity, and thus celebrating differences and actualizing homogeneity must go hand in hand.

As a result, wherever possible, convergence in the adoption of uniform codes of governance can occur, and differences can coexist with the agreements. This has been the case with other multilateral organisations, such as the World Trade Organization and the United Nations, which have been somewhat successful in respecting national sovereignty in the midst of global cooperation and coordination. As long as global capital's demands for transparency and accountability are more profitable, individual differences related to local conditions can be co-opted and embraced within the framework of an international code of corporate governance.

In conclusion, while there are reasons for reluctance to adopt a uniform international corporate code, it is abundantly clear that the benefits outweigh the drawbacks. We are well on our way to implementing the same, but it is critical that we recognise that we must act quickly because it is truly the need of the hour.