Chizu Nakajima

Internal and External Corporate Governance: An Interface between an Organization and its Environment

Most corporate governance research focuses on a universal link between corporate governance practices (e.g. shareholder activism, board independence) and performance outcomes, but neglects how interdependences between the organization and diverse environments lead to variations in the effectiveness of different corporate governance practices. This paper develops an organizational approach to corporate governance and focuses on two dominant streams that analyse internal and external governance mechanisms. First, we explore governance practices aimed at dealing with a complex set of problems internal to an organization, such as conflicts of interest between managers and shareholders, different types of shareholders, and block-holder opportunism. Second, we discuss the importance of formal and informal governance arrangements that organizations use in managing their relationships with external parties, such as alliance partners, overseas subsidiaries and network members. We argue that an integrated approach bringing these two streams together helps to develop a more holistic view on the effectiveness and efficiency of various corporate governance mechanisms, and suggests a number of avenues for future research. This paper also sets the scene for this thematic issue on corporate governance, scopes the field and introduces 11 papers which make significant contributions towards our understanding of corporate governance.

Institutional determinants of good corporate governance: the case of Nigeria

Economic globalization has stimulated debate on the similarities and differences between national corporate governance systems (McCahery and Renneboog, 2002). Whilst the equilibrium of evidence appears to be tilted in favour of a convergence towards a focus on shareholder primacy, the literature remains puzzling and contradictory. In an attempt to reconcile the shareholder and stakeholder models of corporate governance, some scholars have talked about ‘enlightened shareholder value’, ‘instrumental stakeholder theory’, ‘strategic corporate social responsibility’ or ‘the good firm’ (Filatotchev et al., 2007; Jones, 1995; Kay and Silberston, 1995; Parkinson, 1995), as the hybrid model. However, in today’s world of corporate, economic and political globalization, how (and to what extent) is corporate governance shaped by firm and national level institutional environments? What are the different institutionalized expressions of corporate governance in varieties of capitalism? Which institutional parameters and arrangements constrain good corporate governance in emerging markets? Given that the spectacles of the influential agency theory do not explain these relations, our aim in this chapter is to conceptualize corporate governance structures and practices as institutionally determined and guided. We show that national corporate governance systems are endogenous responses to certain national and firm-specific institutional environments. This is critical to a better understanding of corporate governance. Specifically, we argue that corporate governance models, especially in developing countries, are inapplicable if they are not institutionally based and explained. In particular, we examine the extent to which certain underlying national conditions, such as the political, economic, legal and social environments as well as firm/industry values, culture, ethics and history, play a determining role in corporate governance.

Institutions and institutional maintenance implications for understanding and theorizing corporate governance in developing economies

This study is a data-driven attempt to explain why corporate governance systems remain largely unchanged despite regulatory reforms, especially in developing economies. It employs a qualitative research method triangulation to provide an informative and comprehensive account of Nigerian corporate governance complexity. The findings show that national corporate governance systems are endogenous responses to certain institutional environments. They further show the emergence of institutional maintenance in the wider Nigerian business environment. Consequently, the analysis and discussions not only forward a theory of corporate governance in sub-Saharan Africa but also add to the literature on the institutional theory of corporate governance, particularly, to the burgeoning literature on institutional work.

Ethnocentric HRM Policies in the Asia Pacific Region: An Explanation of Host Country Resistance**

This paper considers the impact of ethnocentric policies, using as an example diversity policies, created by Multinational Companies (MNCs), Non Government Organisations (NGOs) and international agencies then imposed on a host country and its population. Examples of practices in the Asian Pacific region illustrate how the experience of colonialisation, war and migration have major impact on perceptions of the Host Country governments and nationals The paper discusses possible reasons for Host Country Nationals (HCNs) to resist foreign, apparently, ethnocentric policies. The resistance is often based on the experience of being colonised or the fragile social cohesiveness by the host nations. The motives of the MNC are often perceived to be to weaken the host nation and its organisations so as to be able to dominate the local economy as part of globalisation, taking little, if any, account of local needs and sensitivities. The imposition of ethnocentric policies shows that the parent organisations are not MULTInational but SINGLEnational Companies.

Rethinking the link between Corporate Social Responsibility and Shareholder Value

One of the major criticisms against the pursuit of shareholder primacy, especially following recent global economic challenges, relates to its ability to create enormous negative corporate externalities (i.e. third party costs) and the inability of the State and other governance actors to completely curtail the excesses of firms, mainly due to information asymmetry. This creates a governance challenge. Arguably, one way to address this challenge is through self-regulation. Drawing insights from a case study of Fidelity Bank, Nigeria, the paper problematises Corporate Social Responsibility (CSR) as a form of self-regulation - a perspective which is often marginalised in the management literature and in practice - and explores how it can simultaneously enable firms to recognise and internalise their externalities, while preserving shareholder value. It further presents some implications for corporate governance, strategy, and regulation.

Ex Ante and Ex Post Allocation of Risk of Illegality: Regulatory Sources of Contractual Failure and Issues of Corrective and Distributive Justice

The pursuit of welfare objectives through contract law rules could be exemplified in the case of illegality and subsequent nullity sanctions attached to a contract that violates certain regulatory rules. The effectiveness of contractual allocation of risk of illegality (regulatory prohibitions), therefore, varies, depending on which contract theory prevails. Maintaining the validity of a prohibited and failed contract, and allocation of the relevant risks, is crucially dependent on whether we adhere to a welfare or rights-based theory of contract. In this paper we argue that impossibility of ex ante and ex post allocation of risk of illegality is the logical outcome of the adherence to a welfare theory of contract law, as maintaining even a minimum validity of the failed contract would result in some welfare losses. According to this approach unjust enrichment could not be rectified because it would diminish the optimal enforcement of welfare objectives. On the other hand, and despite such prohibition and illegality, a rights-based theory would resist opportunistic and rent-seeking behaviour and would ensure the validity of the contract and just allocation of losses and gains, which arise from the failure of the prohibited contract.