“Cultural Dimensions, Ethical Sensitivity, and Corporate Governance” by Alex W. H. Chan and Hoi Yan Cheung
For companies that operate within congested, competitive markets any potential competitive edge is an opportunity that cannot be afforded to be overlooked. Good Corporate governance (CG) has been shown to improve returns on investments and equity within companies, Credit Lyonnais Securities Asia CLSA (2001) compiled a study that found that “CG scores were positively related to financial performance”, (Cheung, Chan 2011). Corporate Governance can be broadly defined as the method by which companies are run, the relationships between the management of the company and its shareholders, board and any other stakeholders, taking into account the aims of that company. CG is then a board term that sums up the working professional relationships that exist within a company today, reflected in working from the very top of the hierarchical ladder right through a company as a whole. The paper ‘Cultural Dimensions, Ethical Sensitivity and Corporate Governance’, co-written by H. Chan and Hoi Yan Cheung implements a quantitative study to discuss whether there exists a correlation between Hofstede’s (2005) cultural framework and GC and whether these factors have a positive or negative effect on CG. Practicing good ethics and ethical sensibilities is another subject within business that has been hotly debated recent years. The 2008 market crash was arguably brought on by unethical practices which in effect caused the “mortgage bubble” that eventually, when burst, sent many global economies into recession. “Recent attention has turned to the collapse of many banks and financial institutions in the financial crisis in 2008” (Business Ethics, Crane and Matten 2010).
Cheung and Chan begin by demonstrating the close links that exist in the literature between CG practice and ethical sensitivity, the reasons behind corporate governance and how it can impact firms in a positive way. They then go on to give a brief description of the CLSA report, its main points and how they were able to take a quantifiable approach to CG. Quoting other reports carried out within the same field Cheung and Chan were able to draw up four hypotheses, each of which were based on CG and how it could potentially be affected by cultural traits/sensitivities: hypothesis one, ‘the quality of CG is higher in low PDI (power distance relationships) cultures; hypothesis two, the quality of CG is higher in high IDV (individualistic) cultures; hypothesis three, the quality of CG is higher in low MAS (Masculine vs Feminism) cultures, and hypothesis 4, the quality of CG is higher in low UAI (uncertainty avoidance index) cultures. Controls were put in place to ensure that there were no differentiating factors between the countries such as political influence or economic uncertainty. Methodology
The authors based their study on empirical data compiled by the CLSA report which carried out a survey on 495 listed firms from 25 emerging markets and 18 industrial sectors (Cheung and Chan 2010). This quantitative research was carried out in the form of a questionnaire, divided into seven key categories deemed as valuable indicatory factors of CG. The management firm in question was then asked to fill out the questionnaire. The authors (Cheung and Chan) then implemented various key control factors so as to negate any differing outside factors which would affect the results. In doing so this left the quantifiable data solely affected by cultural influences. The mean, standard deviations and correlations were then compared with the four original hypotheses drawn up by Cheung and Chan. This cross comparison was a deductive approach to glean useful information from existing research and on hand data, the methods of correlating independent variables was carried out with competent reasoning. Comparable methodology was also used within a report drawn up by...
Please join StudyMode to read the full document