The Elusive Quest for Global Governance Standards
Lucian A. Bebchuk
Harvard Law School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR) and European Corporate Governance Institute (ECGI)
Hebrew University - Faculty of Law
University of Pennsylvania Law Review, Vol. 157, pp. 1263-1317, 2009
Harvard Law and Economics Discussion Paper No. 633
Researchers and shareholder advisers have devoted much attention to developing metrics for assessing the governance of public companies around the world. These important and influential efforts, we argue, suffer from a basic shortcoming. The impact of many key governance arrangements depends considerably on companies’ ownership structure: measures that protect outside investors in a company without a controlling shareholder are often irrelevant or even harmful when it comes to investor protection in companies with a controlling shareholder, and vice versa. Consequently, governance metrics that purport to apply to companies regardless of ownership structure are bound to miss the mark with respect to one or both types of firms. In particular, we show that the influential metrics used extensively by scholars and shareholder advisers to assess governance arrangements around the world—the Corporate Governance Quotient (CGQ), the Anti-Director Rights Index, and the Anti-Self-Dealing Index—are inadequate for this purpose.
We argue that, going forward, the quest for global governance standards should be replaced by an effort to develop and implement separate methodologies for assessing governance in companies with and without a controlling shareholder. We also identify the key features that these separate methodologies should include, and discuss how to apply such methodologies in either country-level or firm-level comparisons. Our analysis has wide-ranging implications for corporate-governance research and practice.
Number of Pages in PDF File: 55
Keywords: Corporate governance, investor protection, agency costs, law and finance, governance indices, global standards, best practices, controlling shareholders, CGQ, anti-director index, anti-self-dealing index.
JEL Classification: G15, G30, G38, K22
Date posted: April 8, 2009 ; Last revised: June 26, 2009
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