Establishing Consistency in Corporate Governance Practices Across Borders


In the contemporary business environment, countries have realized the advantages of opening their economy for foreign investors, and the initiatives taken by most countries are purposely to improve their economies (Bhasa 2004)

However, with increase in the level of globalization, capital transfer from one country to the other, and increase in corporate scandals, analysts have called for a common goal in which the business owners can reach common objectives through corporate governance.

Evidence reveals that there have been rooted problems for the corporate organisation to reach a common goal in the adoption of unified corporate governance across borders (Waring 2006).

The next line of this essay focuses on the problems facing regulators in establishing consistency in corporate governance practices across borders. The essay argues whether consistency is necessary in the governance practice across border.

Problems facing regulators in establishing consistency in corporate governance practices across borders

Corporate governance has been widely defined by different scholars.

Warring (2005) defines corporate governance as the methods the corporate organizations are directed and run by the management (Waring 2006).

It is essential to note that corporate governance is to achieve the overall shareholders’ value and the running of an organization is to ensure that both international and local investors receive returns on their investment (Davies and Schlitzer 2008).

Dennis and McConnell (2003) defines corporate governance as a set of mechanism in which both institutional and company controllers use to maximise the value of an orgaorganization should be noted that overall objective of corporate governance is the way in which a corporate organisation is able to realise returns from their investment.

As being pointed out by Warring (2006) “ Good corporate governance is an essential to prerequisite for the integrity and credibility of financial institution, stock exchange, individual companies, and indeed the whole market economy … “

However, for the corporate organisation to achieve its primary objectives there is need for transparency, and accountability to ensure greater prosperity for all investors. The increase in corporate scandals couple with the natures of international investments lead firms and investors to call for consistency of corporate governance across borders.

These initiatives come because of the advantages that could be realised from the consistent corporate governance such as enhancement of shareholders’ right and efficient international capital market (Warring 2006).

These initiatives taken by different organisations to achieve common goal of uniform corporate governance are resulted to failures over the years. For example, The Organisation for Economic Co-operation and Development (OECD) set up a taskforce to produce a common framework for the acceptability of global corporate governance. Moreover, other organisations such International Monetary Fund (IMF), The Bank for International Settlements, and World Bank set up guideline to achieve common regulatory system to achieve uniform global corporate governance. The initiatives taken by all these countries have not achieved the desired results (Davies and Schlitzer, 2008).

Apart from the initiatives taken by the international organisations, European Commission Company Law and Corporate Action Plan also work a directive for the harmonisation of common corporate governance for member states (Warring 2006).

Despite the initiatives taken by these organisations, there are still problems to adopt common framework to adopt consistent corporate governance.

Scholars have identified the reasons on the inability of regulators to establish harmonisation of consistency corporate governance practices across borders.

Davies and Schlitzer (2008) argue that there are differences in the law of different countries. Each country has norms and rules that guide the ownership of corporate structure and financial system. Difference in legal framework is an important factor that mitigates the consistent corporate governance. For example, the legal framework of US is different from the law governing the UK corporate system.

In the UK, there is unitary system government. The corporate codes that protect the rights of investors are formulated by national law. Thus, all investors in the UK are protected by the same common law. For example, national law governing the corporate structure in the UK is seen under Company Acts 1985 and the Company Acts 1989 that provide the rule guiding companies in the UK. However in US, the country is practising the federal system of government with 50 states. Each state in the United States has a unique legal framework that guide the corporate governance. The laws that protect corporate organisation are different from state to state. For example, in Delaware, the legal framework that allows the setting up of businesses is very simple compared to other states in the United States. At present, nearly half of the US Corporation is registered in Delaware due to the nature of the state’s legal structure. (Warring 2006).

Typically due to the mutual British-American economic relations, there is enormous UK investment in US and there is large number of US investment in the UK. However, under the law of United States and the UK, shareholders’ rights are quite different. For example, under the UK law, directors must seek the approval of shareholders if there is need for takeovers or mergers. However, in the United States, takeover issue is governed by Federal law of William Act 1968. Under this act, the directors do not need to seek for the opinion of the shareholders when an issues of takeover arises, directors in the US can apply Business Judgement Rules to make decision. (Warring 2006).

Added to differences in legal framework, the structure of corporate ownership is different among countries. Different arguments have been provided on the ownership of corporate organisation. In a business environment, there are always conflicts between the ownership of an organisation (Shareholder) and controllers of a company’s activities (Directors). (Warring 2006).

Agency theory argues that there should be separation between business ownership and business control, and the legal framework must be drawn to define the company ownership and those that control the company activities. Agency theory reveals that if there is no separation between the two entities, the result may lead to conflicts between the shareholders and company directors (Warring 2006).

However, despite the stated responsibility of directors, there are still controversies on the role of shareholders on whom to control the business activities.

It should be noted that the abilities of shareholders to influence the control of business are primarily guided by the power of shareholders entrenched in different countries. In the UK, the right of the shareholders is entrenched in the UK company act where the shareholders have the power with their voting rights. With the voting rights, shareholders can effectively influence the director’s decisions in the annual shareholders meeting

For example, under the UK Company act of 1985, section 303, shareholders can remove directors from their post with simple majority. However, in U.S, each company has policy that governs the shareholders’ voting rights. It is not possible to vote out directors through shareholders voting. In short, different companies have their different voting system.

In addition, UK recognises the pre-emption rights of the shareholders. While the fundamental objectives of pre-emption rights are to protect the shareholders wealth and erosion of control, however these pre-emption rights are not accorded in U.S. It should be noted that the pre-emption rights of shareholders varies from state-to state in U.S. Most states are not obliged to provide these rights to the shareholders. Sometimes, some states deliberately ignore them (Warring 2006).

For example, under the Model Business Corporation Act in many U.S states that states “The shareholders of a corporation do not have a pre-emptive right to acquire corporation’s non-issued shares except to the extent the articles of association so provide” (Warring 2006).

The argument provided revealed in the UK law, the power of ownership is highly recognised. It should be noted that in each annual meeting in the UK Corporation, each director of an organisation must resign and submit himself for re-election by the shareholders. A director can be re-elected or be voted out by the simple majority vote of shareholders. Although, records have shown that removal of directors by shareholders voting rights are in rare occasions in the UK. The purposes for these acts are to enhance democracy and provide check and balances on the directors to improve efficiency of the board members (Warring 2006).

However, in United States, laws related to the removal of directors are governed by each state. Formerly, there was majority vote of shareholders to remove directors, however this law was changed in 1980. Thus, there is little legislative history that provides a removal of directors in the United States. The US law can exclude the shareholders when nominating a director to a board. However, this is not the case under the UK law where directors are strictly elected by the shareholders (Warring 2006).

The differences in the degree of ownership rights in the UK and US reveal that the establishment of consistence corporate governance across borders is a very difficult to achieve. Achieving the uniformity of corporate governance is very difficult to achieve due to difference in the legal frameworks of countries.

It should be noted while countries may have different legal system that guides the shareholders rights, different in the countries financial system can serve as problems for inconsistency in the corporate governance across border. It should be noted that banks in the two countries fulfil obligations of funding companies and provide the liquidity services for companies. Nevertheless, laws guiding US banks and the UK banks are different. While it is impossible for foreigners to open a bank account through US patriotic act, a foreigner can open a bank account in the UK. Most banks in the UK will provide banks accounts to a foreign person that can deposit up to ÂŁ100,000.

Evidences in this paper reveal that consistency in the corporate governance is very difficult to achieve. Nevertheless, there is need to achieve the consistence corporate governance that would protect investors across borders. It should be revealed that inconsistency in corporate governance can discourage investment across borders. Davies and Schlitzer (2008).

Analysts have revealed that the overall businesses are suffering from credit crunch because lack of good corporate governance. There is general failure of lack of accountability between the organisations and the owners. This factor combines with information asymmetry where the management has more information about the business than the business owners (Shareholders). These factors lead to global credit crunch because the action of the management can result to the situations where foreign investors may decide to disinvest (Moxey and Brendt 2008).

It should be noted that the shareholders of an organisation may come from different countries. Especially in the UK and US where large percentage of UK investors are in US and the UK investments are also in US. These factors reveal that there is need for consistency in corporate governance across border.


While it is important to achieve a consistence corporate governance across border, this objective is very difficult to achieve because of differences in the legal frameworks of different countries. Nevertheless, adopting consistency in corporate governance will improve market value and enhancement of capital flow across countries.


  1. Bhasa, M, P, (2004), Global corporate governance: debates and challenges, Journal, Corporate Governance, 4, 2: pp. 5 – 17.
  2. Davies, M, Schlitzer, B, (2008), The impracticality of an international “one size fits all” corporate governance code of best practice, Managerial Auditing Journal, 23, 6: pp. 532-544.
  3. Dennis, D, K, McConnell, J, (2003), International Corporate Governance, Social Science Electronic Publishing, USA.
  4. Moxey, P, Brendt, A, (2008), Corporate Governance and the Credit Crunch, The Association of Chartered and Certified Accountant, UK.
  5. Waring, K (2006), Effective governance corporate framework: Encouraging enterprises and market confidence, The Institute of Chartered Accountant, England and Wales.
  6. .Waring, K (2006), Shareholder Responsibilities and Investing Public/ Exercising ownership rights through engagement, The Institute of Chartered Accountant, England and Wales.

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