Lecture 5

Question 1

Why do CG vary across the world?

Answer 1

• Institutional reasons
• Historical: how wealth has been dispersed historically affects how the system works
• Culture: we tend to not be good in defining what it means
• Path dependency: You don’t start with a clean slate every day
• Distribution of wealth
• Harmonization?

Question 2

What are the three dimensions of Corporate Governance?

What adds to every dimension?

Answer 2

Management
* Autonomous vs committed
* Financial vs functional

Labor
* Participation vs control
* Portable vs firm specific skills

Capital
* Financial vs strategic
* Liquidity vs commitment
* Equety vs dept

Question 3

What are the factors to be considered in the CG dimension labor?

Answer 3

• Participation vs control
• Portable vs firm specific skills
• If you have a portable skill – you can use it in any industry or any position. Firm-specific skills tend to be less prone to changing their job
• Portable skills are more dominant in Anglo-Saxon and firm specific in Europe

Question 4

What are the factors to be considered in the CG dimension Capital?

Answer 4

• Financial vs strategic
• Liquidity vs commitment
• Equety vs dept
• Are you doing the investment to compete better on the market or in order to maximize profit?
• In the Anglo-Saxon world, debt is more prominent than equity. Equity more dominant in Europe

Question 5

What are the factors to be considered in the CG dimension Management?

Answer 5

• Autonomous vs committed
• Financial vs functional

Question 6

What are the three levels of Corporate Governance Systems?

Answer 6

• Level 1: The regulatory level (laws, regulation, rules)
• Level 2: The “advisory” level (codes of conduct, norms, best practices)
• Level 3: The “personal” level (individual beliefs, behavior, discretions)

Question 7

What is the first level (Level 1) of CGS? What characterizes it?

Answer 7

• Level 1: The regulatory level
• Laws
• Regulation
• Rules
• Same for everyone and all corporations. Some differs between industries and some differs between legislation form

Question 8

What is the second level (Level 2) of CGS? What characterizes it?

Answer 8

• Level 2: The “advisory” level
• codes of conduct
• norms
• best practices
• No laws, agreements within industries or the firm.
• E.g., Accountants

Question 9

What is the third level (Level 3) of CGS? What characterizes it?

Answer 9

Level 3: The “personal” level
- Individual beliefs
- Behavior
- Discretions
* How do you behave
* Differs between individuals. If it’s not regulated on level 1 or 2

Question 10

What are two different CGS?

Answer 10

Market-oriented
Network-oriented

Question 11

Describe Network oriented CGS

Answer 11

• The network-oriented model is also labeled the continental, insider, civil law, blockholder, bank-oriented, stakeholder-centered, coordinated, or “Rhineland” model

Question 12

Describe Market oriented CGS

Answer 12

• The network-oriented model is also labeled the continental, insider, civil law, blockholder, bank-oriented, stakeholder-centered, coordinated, or “Rhineland” model

Question 13

According to Bratton and McCahery (2002), what is the future CGS?

Answer 13

• a unitary system as there is strong convergence towards a global system which assembles the best elements of both major governance systems and combines them together (the least likely alternative);
• a universal market-based system as anticipated by the Chicago School of financial economists, representing the triumph of the rules based outsider system;
• an improved variety of governance systems in which there is weak convergence, but some learning from each other between the different national systems;
• a set of viable distinctive governance systems, based on distinctive institutional complementarity each having a unique identity and capability.