Convergence and International Corporate Governance

Topics: Corporation, Governance, Corporate governance Pages: 3 (1053 words) Published: November 8, 2005
Find and summarise (in no more than 1000 words) some of the work that has been done by Katherine Pistor and others on Convergence, Divergence and ‘Path Dependency' of legal systems as it relates to International Corporate Governance.

In recent years the issue of corporate governance has become a keenly debated topic in international finance. In developed countries, some of the biggest corporate collapses in history have brought about a change in focus. No longer are governments and lawmakers trying to deregulate and reduce the controls and disclosure requirements of corporations. The deregulation boom has ended, as regulation comes back into the picture.

After the Latin American Crisis of 1995 and the Asian Currency crisis of 1997-1998, corporate governance is also a key area of concern in developing countries. Questions about the optimal set of rules and regulations that govern corporations are being posed. One of the biggest points of discussion in this debate is how corporate governance and legal systems are developing of their own accord, and in particular relative to one other. There are two schools of thought in relation to this issue: those who believe in convergence and those who believe in divergence. The convergence school says that countries select the laws that have been shown to be the most effective in other countries, because of competition between regulators. On the other hand, the divergence approach says that laws are path dependent, meaning that legal rules are determined by pre-existing structures and laws.

In an increasingly globalized world, efficient new technologies and production systems spread rapidly, as competition quickly removes those producers who are slow to react. Those who believe in the convergence argue that "just as the founders of a firm have incentives to make the kind of products that people want to buy, lawmakers have the incentive to make the kind of firm, governance structure and securities...

References: Bebchuk, L. & Roe, M. 1999, ‘A theory of path dependence in corporate governance and ownership ' pp. 2-38.
Easterbrook, F. & Fischel, D. 1991, The economic structure of corporate law, Harvard University Press, Cambridge, Mass.
Pistor, K. 2000, ‘Patterns of legal change: shareholder and creditor rights in transition economies ' pp. 1-27.
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