Introduction
The corporate governance structures differ around the world, but not too much. There are only some details, like the primacy or scope of responsibility and power concentrated in the hands of managers, as well as ways of interacting with the legislation of different countries. For example, in the United States, corporations place more emphasis on CFOs because of the impact on the business of stock market trends.
At the same time, in China and other Asian countries, for example, Indonesia, Malaysia, India, corporations are under the influence of government directives and are forced to strictly comply with the requirements of the national legislation of the countries, which can limit the power of all representatives of the corporate governance structure, including CEO, COO, CFO, and the Board of directors. This paper aims to explore and review the corporate governance structures across the world and discover their similarities and differences.
Main Elements of the Corporate Governance Structure in the US
Corporate governance, which only emerged in the 20th century, with the historical expansion of industry and business opportunities, led to the need to create developed structures for managing public and private property and interacting with the state. Estevez (2020) notes that “the evolution of public ownership has created a separation between ownership and management,” which gave an impetus for creating the developed management structure. A corporate governance structure has become essential for companies, especially large international conglomerates, to participate in trading on global exchanges. In the United States, the most common corporate structure consists of a board of directors and a management team.
The concept of public ownership implied that the corporations must respect the interests of shareholders, and the shareholders must somehow control the activities of the companies. Therefore, it was decided to implement a two-tier corporate hierarchy, with a board of managing directors at the first level and senior management at the second level of that hierarchy. The board of directors is elected by the shareholders of the corporation, and senior management is recruited by the board of directors (Estevez, 2020).
The board of directors consists of internal directors, who are selected internally, and external directors, who are selected externally. Internal directors are the CEO, CFO, COO, or any other manager. At the same time, outside directors are independent managers of the company and are selected from outside. Their role is to oversee the work of internal managers and protect the interests of shareholders.
Internal and external directors as well as the chairman are included in the board members. The chairman is technically the leader of the corporation and is responsible for ensuring that the board of directors operates as efficiently as possible. The chairman interacts with the CEO to jointly develop business strategies. The chairman is the official who is responsible for presenting the management staff to the general public and for implementing corporate ethics (Estevez, 2020). Internal directors implement business strategies and approve high-level budgets, presented by CEOs, and approve corporate projects.
If internal directors are part of the company’s management, they are called executive directors. These people can present an internal perspective on the company’s business circumstances to the board of directors. The role and functions of external directors differ in that they are not part of the management team, but only express an independent point of view and embody an impartial position on the issues on the agenda of the board of directors.
All corporate governance structures across the world have the roles of CEO, COO, and GFO, and their functions should be considered in more detail. The CEO or the chief executive officer reports only to the board of directors and the chairman and is accountable to them for the quality of the company’s operations. CEO implements solutions. Ideas, initiatives, and strategies of the board of directors implementing the executive function (Estevez, 2020). At the same time, as a senior manager, the CEO is responsible for the day-to-day running of the company, and if any disruptions arise, he must make decisions on how to fix the disruptions.
The CEO is an internal director, and can sometimes be the chairman of the board of directors, combining both roles. Although this state of affairs is not recommended, as it violates the principle of distribution of powers. The Chief Operations Officer or COO is responsible for the company’s operations, as well as manufacturing, personnel, sales, and marketing (Estevez, 2020). The role of the COO is more practical, he oversees the quality of work on a day-to-day basis, and prepares reports for the CEO, COO can be called the vice president of the corporation.
The Chief Financial Officer or CFO also prepares reports for the CEO and is responsible for analysing and verifying financial data, monitoring expenses, and expenditures, preparing budgets, and reporting on financial performance. The CFO reports regularly or sends them in writing to the board of directors, regulators and shareholders (Estevez, 2020). The CFO is accountable to the Securities and Exchange Commission (SEC) to ensure that financial statements comply with laws, rules, and regulations. The CFO holds the title of Senior Vice President and is responsible for the adequacy of the company’s financial condition.
All of this complex governance structure, including the board of directors, chairman of the board, executive internal directors, and managers, have a common primary goal of maximizing shareholder value. In other words, since shareholder value is a measure of a company’s success, it is also used to measure the quality of the management team. At the same time, shareholders have an immediate financial benefit from increasing or maximizing shareholder value.
Typically, many boards of directors include members of the management team who work with other board members to ensure shareholder representation. The balance between internal and external members of the board of directors allows you to be on the safe side and always have an adequate outside perspective on the corporation’s business. Board representatives should ideally be experts, professionals with extensive experience in business and company management.
Kanojia and Bhatia (2021) compared how corporate governance affects dividend payments in the United States and India. The survey results demonstrated that good corporate governance is positively associated with higher dividend payments, and poor corporate governance guarantees feedback. For the United States, indicators of success and good governance included board independence, institutional ownership, and board size. At the same time, these indicators and any other individual parameters of corporate governance were not significant for India (Kanojia & Bhatia, 2021). This information indicates a higher investment potential of US companies in this area. The results also show the effectiveness of improvements to the US corporate governance structure to increase dividends, which should be taken into account by financial regulators.
Corporate Governance Structure Peculiarities in Asia – Scientific Perspective
Scientists who study the corporate governance structure across the world tend to look at how various elements and features of this structure, widely accepted in different countries, affect financial performance, business success, and other factors such as the corporate image. Therefore, it is necessary to consider the corporate governance structure as an element of a company’s business, which is influenced by the same external factors as other elements of business, for example, the influence of the market, the specifics of doing business in a particular country, or factors of the global market.
Shao (2019) examined the relationship between corporate governance efficiency and firm performance in China. The performance of firms was studied based on the performance of quotations on Chinese exchanges in 2001-2015 (Shao, 2019). The authors acknowledged that the corporate governance system in China differs from similar systems in Japan, Germany, the United States, and other countries. It was determined that there is no relationship between the size of the board of directors, and financial performance indicators, including the quotations on stock exchanges, which determine the effectiveness of companies.
At the same time, the researchers confirmed that the CEO’s performance of combining functions had a negative impact on the success of firms (Shao, 2019). Interestingly, the concentration of ownership had a positive effect. Management ownership was bad for productivity, and government ownership was associated with great company success, as was an active supervisory board. The results of this study are important, as they indicate ways to improve the corporate governance structure, taking into account the realities characteristic of China.
Dzingai and Fakoya (2017) also examined the impact of corporate governance on the financial performance of firms and selected the Johannesburg region of South Africa. The lack of good corporate governance at the Johannesburg companies has led to many crises and financial crashes. The financial results of the companies were mediated by the results of quotations from the Johannesburg Stock Exchange (JSE) in 2010-2015 (Dzingai & Fakoya, 2017). It also used data from the sustainability reports of mining companies and integrated annual financial statements.
The results of the study showed that the size of the board has a weak negative effect on the size of the return on equity (ROE). At the same time, the independence of the board had a little positive effect on ROE. In its turn, the ROE had a weak positive correlation with sales growth and a weak relationship with firm size. The researchers concluded that having a small effective board of directors, subject to the supervision and control of a supervisory board, would improve the financial performance of firms in South Africa (Dzingai & Fakoya, 2017). They also recommended firms to use the King IV Code of Conduct, as it provides helpful advice to enable companies to financially benefit from ethical investments.
Interestingly, Jamil et al. (2020) studied how the corporate governance structure impacted sustainability reporting of the companies having business in the Malaysian region. According to scientists, due to effective corporate governance in 2010-2014, a significant improvement in the indicators of reporting in the field of sustainable development was found (Jamil et al., 2020). Factors that influenced improvements in the quality of reporting included the attendance of board members on sustainability training, the percentage of directors introducing sustainability into the company’s business, and the experience of directors with sustainability experience. The results of this study demonstrate the importance of board members’ experience and professionalism in various areas related to the company’s public image.
Nasih et al. (2019) examined how the corporate governance structure of Indonesian firms in the mining and agricultural sectors affects the size of their carbon emissions. The study involved companies listed on the stock exchange from 2011 to 2016 (Nasih et al., 2019).
According to the results, larger companies with larger board sizes showed a greater propensity to disclose information about carbon emissions. At the same time, companies with a high percentage of outside directors were less likely to disclose carbon emissions. This study supports the idea that larger companies with larger board sizes in the Asian region show better social responsibility and are more concerned about the corporate image. The study also confirmed concerns about the potential negative impact of outside directors in making more ethical decisions, which could involve temporary damage to the company’s image and additional liability.
Detthamrong et al. (2017) investigated the relationship between corporate governance of firms in Thailand, the capital structure of these firms, and firm performance. The results showed that corporate governance does not affect financial and other performance indicators. At the same time, leverage had a significant positive impact; unexpectedly, the size of the audit committee and the auditor’s reputation negatively affected the performance of companies. This study is a vivid example of how the state or regional context is directly related to the level of influence of corporate governance on business performance indicators.
Chow et al. (2018) conducted a study to examine the relationship between corporate governance, corporate capital structure, and macroeconomic uncertainty. The study involved 907 firms from seven countries in the Asia-Pacific region and provided data for 2004-2014 (Chow et al., 2018). The results of the study demonstrated that the relationship between macroeconomic uncertainty and capital structure for companies with high quality of corporate governance was negative since corporate governance was a positive mitigating factor. The researchers concluded that corporate governance can be an effective mechanism for limiting the use of leverage during periods of volatility. Optimal governance mechanisms were also explored, including the separation of CEO roles, board independence, and ownership of blockers. At the same time, the size of the board of directors and institutional ownership did not have a significant impact on the company’s management results.
In other words, the listed mechanisms can be useful for eliminating the consequences caused by macroeconomic uncertainty and in conditions of high volatility. This is especially important information for regions where periods of macroeconomic uncertainty and instability are more common (Chow et al., 2018). Therefore, effective corporate governance allows us to maintain stability and make the right financial, production, and investment decisions. It can also be assumed that the effective corporate governance structure is even more important for doing business in unstable regions and emerging markets, such as the markets of the Asia-Pacific region, while in the more stable conditions of the United States and Western European states, the consequences of mistakes in the corporate governance can be less noticeable.
Bhatt and Bhatt (2017) examined patterns of relationship between corporate governance and corporate performance and performance in the Malaysian region. Scientists have used Agency Theory and Dependency Theory to prove the importance of stronger corporate governance and superiority in this case over companies with weaker corporate governance. The institutional environment in Malaysia differs from the European or American environment, which made it possible to ensure the uniqueness of the study. Due to institutional differences, most companies in this region follow the Malaysia Code of Corporate Governance, which outlines the most important mechanisms for optimizing governance and the impact of governance on doing business.
The results demonstrated a significant positive relationship between corporate governance and company performance. Scientists also observed improvements in the performance of companies in 2012 compared to 2007 due to changes and additions to the Malaysian Corporate Governance Code (Bhatt & Bhatt, 2017). Therefore, the results of this study confirmed the relevance of the Agency Relationship Theory and the Resource Dependence Theory. The study also showed that there are differences in the application of a stricter corporate governance code for advanced and emerging economies, given that a stricter code is more effective in the latter case.
Mohan and Chandramohan (2018) examined how corporate governance affects the performance of Indian companies. Notably, the scholars discussed factors such as return on equity, price-to-book value ratios, board composition, CEO duality, and board size. Quotes on the Bombay Stock Exchange were used as an indicator of companies’ performance. At the same time, scientists looked at specific variables such as sales growth, asset turnover, and financial leverage.
It is noteworthy that factors of the corporate governance, especially the size of the board of directors and the duality of CEOs, had a negative impact on the performance of companies. At the same time, the composition of the board of directors had a neutral effect on success rates (Mohan & Chandramohan, 2018). Therefore, scholars have again proven the importance of separation of functions for CEOs, which remains unchanged in most institutional contexts, including the regions of the United States, Europe, and Asia. The second important element of success related to corporate governance is the monitoring of financial, operational, and business processes, which is sometimes carried out by committees in European countries. The introduction of such monitoring, according to scientists, will improve performance indicators.
Corporations’ Experiences in Asia and Europe
Considering the information presented above, we can conclude that most companies in the Asian region, Europe, and the United States have a prevailing number of similarities in the corporate governance structure. At the same time, the differences can be related to the difference in the size of the board of directors, the presence of the supervisory board or external directors, and the role of the CEO, who may or may not combine his duties with other roles in the company. However, the overall structure remains unchanged, as can be seen by comparing the corporate governance structure of very different entities – the Bank of England and SIG Indonesia.
SIG Indonesia is a local Indonesian company founded in 1966 that produces high-volume cement and is well represented in the construction market in the region (“Corporate governance structure and mechanism,” 2021). The corporate bodies of this company include the general meeting of shareholders (GMS), the board of directors, and the board of commissioners. Thanks to the use of a system of two councils, the company successfully distributes functions and responsibilities in management.
The board of commissioners includes committees that strengthen the oversight function. These are the Risk and Investment Strategy Committee, the Human Resources and Remuneration Committee, and the Audit Committee. As their names suggest, the committees exercise additional oversight and strengthen the functions of the CEO, COO, and CFO. The company has also established internal board oversight bodies to improve efficiency.
The board of commissioners includes the BOC secretary, RMSIC Committee, Nomination, remuneration and CSR Committee, and Audit Committee. The board of directors includes the department of HR planning and policy, corporate secretary, internal audit, department of risk and management, department of SHE management, and department of CSR (“Corporate governance structure and mechanism,” 2021).
The corporate secretary has a specific role to play in being responsible to the board of directors, board of commissioners, and its committees. Notably, SIG is committed to the simultaneous distribution of authority and integration of divisional functions and job roles and responsibilities. A distinctive feature of this company’s structure is plenty of double controlling functions, including an independent audit of financial statements, which can be very useful to ensure the corporation against unexpected financial losses.
The Bank of England is a government agency that reports to parliament but is financially independent. The Bank of England is formally responsible to the people of Great Britain, and its main general purpose is the well-being of the people. The bank has existed for over 300 years and was nationalized in 1946 due to the volume of financial transactions and its significant role in the state economy (“Governance and funding,” 2021).
The board of directors is responsible for managing the bank, developing key strategies, and making decisions related to financial flows and partnerships. The board of directors consists of five permanent members, including the governor and four deputies, and seven non-executive directors. All board members are appointed by the UK government, with the governor also serving as chief executive officer.
Various departments and committees provide quality work for the entity. The internal audit department protects reputation, soundness, and assets by managing corporate governance risks and assessing the effectiveness of internal control processes in accordance with the internal audit charter. Three critical committees make policy decisions – the Prudential Regulation Committee, the Monetary Policy Committee, and the Financial Policy Committee (“Governance and funding,” 2021). These committees report to the governor and include external members who do not work directly in the Bank of England.
Another external oversight body is the House of Commons Treasury Committee, to which the CEO and other governors of the bank report. The committee considers issues of prudential regulation, financial stability, and monetary policy. The bank is governed by the Bank of England Act 1998 and its statutes. The bank has formal cooperation agreements with organizations such as the Financial Conduct Authority, the UK Treasury, and foreign central banks (“Governance and funding,” 2021).
Agreements are necessary for the bank to be able to effectively perform its functions by exchanging information with the listed structures. It is noteworthy that the bank fully supports itself financially, generating funds through effective work, the strategies of which are developed by the board of directors. Major income items include investing money from other banks, charging regulated firms, providing banking services to customers and government agencies, and investing in equity capital.
The responsibilities of the board of directors are typical for any other corporation and are rather standardized, which confirms the general similarity of corporate governance structures across the world. Supervisory Statement (SS) 5/16 includes a list of the responsibilities of the board of directors and how to make it effective (“Corporate governance: board responsibilities,” 2021). The board of directors ensures the stability and safety of the bank and strives to avoid disruptions in risk management or corporate governance.
The document emphasizes the importance of the collective responsibility of board members, which complements the individual responsibility of executive directors, including CEOs, senior managers, and senior insurance managers. The Financial Reporting Board’s Corporate Governance Code also provides useful information on bank management.
Corporate Governance Structure Peculiarities in Europe – Scientific Perspective
In general, scientists consider the importance of the corporate governance structures in the European countries from the same positions as the structure of companies in Asia and other regions. Interestingly, Gurol and Lagasio (2021) examined the dependence of the market performance of European banks on corporate governance, considering the utilization of the one-tier and two-tier models. The researchers looked at factors or variables of corporate governance, including the size of the board of directors, the percentage of women on the board, the average length of office, and the average age. According to the results, the size of the board of directors and the number of female directors were positively associated with the efficiency of banks for both models.
Terinte (2020) studied audit practices and corporate governance in firms of Central and Eastern Europe. The scholars discovered a positive link between operational efficiency and having an independent internal audit committee. The higher performance indicators were also driven by the auditing of the Big Four and the lack of ambivalence of the CEO position. Scientists note that corporate governance has a strong and direct relationship with the efficiency of the company, including performance and long-term development. The best corporations follow corporate governance codes and auditing standards, although this is a voluntary choice.
The purpose of introducing various additional practices, committees, standards is to provide a better return on investment and growth in the value of companies’ shares. In emerging Europe, adherence to auditing codes and standards is especially important to keep up with trends in the corporate sector (Terinte, 2020). The results of the study allowed the scientists to conclude that the presence of an independent internal audit committee affects the profitability and growth of return on investment, as it is positively and consistently associated with the ROE indicator in companies doing business in Central and Eastern Europe. Companies’ return on assets has also been positively associated with the absence of CEO duality. The separation of powers and independent auditing allowed for improved operational performance through effective management.
El-Bassiouny and El-Bassiouny (2019) compared top-listed companies in Egypt, the United States, and Germany to examine the links between corporate governance, diversity, and CSR reporting. More specifically, the scholars studied various organizational level drivers of CSR reporting and differences for developed and developing countries. To determine the participants, the scientists used the indicators of the EGX 30 (Egypt), DAX 30 (Germany), and Dow Jones 30 (US) indices. Information from the BoardEx and Orbis databases was also used to determine management and diversity methods.
Using the results, El-Bassiouny and El-Bassiouny (2019) noted that for Egyptian companies, diversity, governance structure, board independence, and foreign board were associated with the best disclosure of the CSR. At the same time, these figures were not relevant to the disclosure of CSR in German and US companies. The scholars concluded that the institutional context mattered more to the disclosure of the CSR than organizational-level factors per se. An important discovery was the difference in the impact of management practices on CSR in Egypt, which is classified as a developing country, compared to developed countries, but the institutional environment was of primary importance.
European-based International Governance Structure – PwCIL Example
At the same time, the corporate governance structure may differ depending on the type of company; for example, PwC Network, which is more a brand than a company, has a unique corporate governance structure due to the uniqueness of its operating concept. PwC has built a brand and enables companies worldwide that are members of the PwC network to provide professional services using that brand (“What is PwC,” 2021). In other words, a large number of companies form a PwC network that is not a parent company, with a number of subsidiaries, or a system of relationships based on hierarchy and mutual responsibility. Each of the companies represents the PwC brand but is fully legally independent, including for third-party audits.
It is noteworthy that in many countries accounting companies must be owned by residents, citizens of the country, and be independent of foreign capital. Regulatory authorities are closely monitoring the implementation of this requirement, although there has been a recent trend towards relaxation in the strictness of control. Therefore, PwC member firms operate as independent entities, without the ability to combine into a multinational corporation (“What is PwC,” 2021). That is, PwC is not a multinational corporation or global partnership, but simply a network of firms united by one brand.
The firms in the PwC network are independent legal entities but work together to maximize the experience of their customers. These firms are members of PricewaterhouseCoopers International Limited (PwCIL). It is a private company registered in England with limited liability. Therefore, PwCIL does not provide services or accounting but acts as a coordinator for the companies that are part of the network. The company is working on strategic issues like brand, strategy, network leadership, risk, and quality (“What is PwC,” 2021). The PwCIL Board of Directors develops and implements initiatives aimed at coordinating individual firms and aligning their approach to service delivery
Participation in the PwC network allows companies to use PwC’s methodology and name and use each other’s resources by mutual agreement. Network members can also provide clients to each other and share the client base if this helps to enrich the service.
Given this close relationship, member companies must follow the rules, policies, and standards of the network (“What is PwC,” 2021). It can be assumed that the relationship between companies resembles that of members of an elite club who have close relationships and common financial and business interests. The member firms are not legal partners, although they have legally registered names containing the brand name, although PwCIL does not own these companies. Therefore, the firms participating in the network cannot act on behalf of each other or oblige each other to any responsibility and are only responsible for their actions. Therefore, PwCIL also does not act as an agent for any of the member firms and is not legally responsible for them.
The corporate governance structure of the PwCIL includes the global board, network leadership team, strategy council, and inner leadership team. This distribution of roles seems quite simple, but, paradoxically, the strength and uniqueness of the company lies in what functions it does not have, and not in what responsibility it bears in management. The global board of directors represents the interests of all network members, oversees the network’s leadership team, and is responsible for the success of PricewaterhouseCoopers International Limited and the PwC Network (“Governance structure,” 2021). Then, the network leadership team develops the standards that network members follow.
The strategy council is responsible for consistent strategy implementation and overall strategic direction and includes senior partners from several of the largest brands using firms. Finally, the inner leadership team is accountable to the network’s leadership team and ensures that the strategy is implemented in key areas of the PwC network and functions effectively.
Interestingly, Kieschnick and Moussawi (2018) examined the relationship between corporate governance, company age, and capital structure choices. The results of the study showed the relationship between the age of the firm and decisions to use leverage, and, accordingly, the amount of debt. Interestingly, the age of the firm also influenced the decrease in the amount of used debt, although it had a positive effect on the decision to use the loan. The amount of debt was also due to the peculiarities of the company’s management – with more power from insiders, the amount of used debt decreased.
Scientists concluded that managers become freer to make decisions over time, even when those decisions go against the traditional rules of corporate financial discipline. It should be noted that this study is regionally universal, as it involved corporations from the Compustat database with non-negative total assets for the period 1996-2016 (Kieschnick & Moussawi, 2018). Therefore, the results indicate that the observed trends are typical for all regions and markets, including the United States, Europe, and Asia.
Similarities in the Corporate Governance Structures across the World
It is noteworthy that scientists investigate similar patterns of company functioning, mainly the relationship between corporate governance structure and various financial and business indicators that determine the company’s success. Despite the many differences in the details of how corporations operate, the general meaning and general scheme of corporate governance remain the same for firms across the world. Its essence is based on the principles of distribution of responsibilities, cross-control, matching the volume of investments to the size of the board of directors, the importance of experience and expertise for board members. Equally important is the active participation of managers and an attentive attitude to all business processes, including those in the areas of responsibility of the CEO, CFO, and COO.
The principle of distribution of responsibilities is very important, as it ensures that the person who is entrusted with a responsible role, such as the CEO, can fully devote himself to the responsibilities associated with this role, without being distracted by other tasks, such as the duties of the chair in the board of directors. Several scholars have noted a positive relationship between a lack of duplication of employment and the performance and success of a company’s business, regardless of the region in which the business is conducted.
Cross-monitoring is ensured by the existence of oversight committees such as an audit committee or strategic initiatives that provide hedging in an ever-changing market. Cross-audit, that is, an independent audit that is performed for a company on its behalf, is also very important to avoid potential problems associated with financial reporting and improve the efficiency of financial calculations. Moreover, the principle of cross-control can be implemented in the framework of subordination and reporting of some parts of the management board to other parts, for example, in the case of the COO reporting to the CEO, the CEO to the board of directors, or the board of directors to all shareholders. Such double or triple reporting ensures that all elements of the company’s functioning work smoothly and without interruptions and that strategic ideas and objectives are adequately, carefully thought-out practical implementation.
Further, the size of the board of directors generally corresponds to the size of the company and the amount of investment it receives. This factor can play a large role in how seriously a company takes CSR and how transparent its reporting is in a number of practices, such as environmental or carbon emissions reports. At the same time, the size of the investment can affect the overall performance of the brand and the stability of the company in the market. Finally, the experience and expertise of board members can be critical when it comes to making collegial responsible decisions, or when developing a strategy for presenting the company’s public image.
Differences in the Corporate Governance Structures across the World
Taking into account the information presented in a number of studies, it is possible to distinguish many differences in what methods of corporate governance exist and differences in variations of the corporate governance structures. For example, the factor of the institutional environment is very important, which differs depending on the region, and even within the limits of one region, depending on the development of the market.
For example, in Europe, the institutional environment in Western Europe is characterized by the conditions of developed economies, while in Central and Eastern Europe; the macroeconomic conditions of emerging economies are more typical. It is noteworthy that developing economies are associated with macroeconomic instability, and in such conditions, stricter adherence to traditional requirements for corporate governance is important, since this factor has a greater impact on management performance, the success of companies, and their quotations on stock exchanges.
It is noteworthy that the most common requirement for corporate governance standards is the absence of the duality of the CEO’s role, which is not recommended to simultaneously perform the functions of the CEO and the chairman of the board of directors, as this reduces the overall efficiency of his work and the company’s success indicators. The second important aspect that scientists usually associate with a positive effect on the activity and success of a company’s business is the size of the board of directors, although this factor is much less important than the role of the CEO. In particular, the size of the board of directors may be more important for emerging Asian markets, but in countries with strong government regulation, the importance of this element is reduced.
Diversity and the presence of women on the board of directors and the composition of the board of directors also significantly influence the success of the company and its positive public image. In particular, the presence of women and more experienced executives on the board of directors is associated with better disclosure of the CSR practices and perception of the company’s image. These characteristics are also more important for the Asian region and in the conditions of developing economies. The experience of managers also influences the propensity to make their own decisions about financial transactions, contrary to traditional requirements of the standards, which can have both positive and negative consequences. The composition and size of the board of directors also affect the stability of companies, especially in the European Region.
An equally important difference is interaction with government agencies. In Europe, companies also have more freedom in choosing their corporate governance structure, and such well-known corporations as PwC and the bank of England successfully use this freedom. In contrast, in the Asia region, there is a reasonable need for companies to follow clearly defined standards and requirements for a corporate governance structure, as not all companies have the experience to experiment successfully. In other words, corporate governance standards are important primarily for companies that originated and do business in emerging markets.
Generally, corporate governance has a direct impact on aspects such as return on investment, and can also be linked to capital structure or lending decisions. This means that the corporate governance structure says a lot about the quality of governance and the procedures that companies practice on a daily basis. It is more common for European companies to have additional oversight bodies, such as external audit committees, which ensure that financial statements are cross-checked. Operations Committees or Strategic Planning Committees can perform similar oversight functions to avoid mistakes that CEOs, CFOs, and COOs can make. Moreover, European companies are even characterized by the creation of departments that are internal elements of the company, but still, carry out the functions of control and supervision.
Most scholars agree that the existence of external audit committees is highly positively associated with the performance of companies, both in the developed markets of the US and Europe and the emerging markets of the Asian region. The practice of external auditing is less common in the Asian region, while in Europe and the United States it is practically mandatory. The use of external audit makes companies more resilient and less susceptible to the negative effects of crises.
Another factor of corporate governance that affects the business processes of companies is the presence of foreign members of the board of directors, which, contrary to the expected results, is of lesser importance for companies in the Asian region. It is likely that the experience of foreign directors is not a sufficient factor to change the strength of the influence of the institutional environment, such as high volatility and macroeconomic instability.
In general, an important observation is the duplication of functions, which may be present in all companies, but is more common in Europe. Oversight committees can duplicate the functions of executive directors, and for European companies, this is mandatory and meets the requirements of the standards. It can be assumed that oversight and control is an essential element of corporate governance success.
The second most important is the separation of the roles of the CEO and the chair of the board of directors. The cross-reporting policy between CFO, COO, CEO, board of directors, and shareholders also allows for the creation of a special hierarchy system and a strong connection between the elements of this system. As a result, the entire machinery of a corporation works better when management decides to follow traditional standards, with rare exceptions.
Conclusion
Thus, similarities and differences in the corporate governance structures across the world were analysed. The US has the most widespread and traditional governance structure, which perhaps serves as an unspoken model for governance structures around the world, given that in the early 20th century, the US was the leader in industrial growth and, consequently, the role of corporations in the country’s economy was more significant.
European companies may have more unconventional structures, since the relationship of companies with the law is less rigid than in the United States, and allows for the possibility of an original approach, provided that the traditional goals of the public corporations are respected, which is to act and conduct business for the benefit of all citizens. Finally, in Asia, corporations predominantly inherit the US model, with some changes due to smaller company sizes or government requirements. In general, the differences in the corporate governance structure in corporations across the world are insignificant, since all companies follow the general principles and rules dictated by the tasks of the existence of the corporate governance structures.
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