Governance

Good corporate practices in poor corporate

governance systems
Some evidence from the Global Competitiveness Report
Peter Cornelius

Peter Cornelius is the Chief

Economist of the Royal
Dutch/Shell Group, London, UK.

Abstract

The author would like to thank Marco

Becht, George Dallas, Klaus Deutsch,
Bruce Kogut, Theodore Moran, and
Joel Kurtzman as well as participants
in a workshop at the Third EABIS
Symposium on The Challenge of
Sustainable Growth: Integrating
Societal Expectations in Business,
Gent, September 27-28,
2004. All remaining errors are the
authors. The views expressed in this
paper are not necessarily those of the
Royal Dutch/Shell Group of
Companies.

1. Introduction

PAGE 12

j CORPORATE GOVERNANCE j

Purpose Attempts to benchmark corporate governance practices have focused primarily on

developed capital markets, whereas cross-country comparisons remain difficult for emerging markets.
Given the growing importance of emerging markets as an asset class, this paper attempts to shed
some light on the quality of governance practices in a large sample of countries and the extent to
which that quality may offset perceived weaknesses in the institutional framework in which companies
operate.
Design/methodology/approach In the absence of comparable data for many emerging markets, the
paper employs new survey evidence from the World Economic Forums Global Competitiveness Report.
Findings The analysis suggests the following: first, legal institutions play a key role for corporate
governance, but other factors, such as politics and cultural and historical roots, matter too.
While corporate governance practices in emerging markets tend to be weaker than in developed
capital markets, several emerging markets have already made substantial progress in
upgrading their practices and, as their institutions continue to emerge, the existing quality gap
looks set to narrow further. There are several countries whose companies on average appear to follow
better practices than the quality of their legal and regulatory environments would suggest.
Research limitations/implications Good corporate governance at the company level need not be
tied or constrained by its local environment. That good company practices may at least partly offset
weak framework conditions and could have important implications for the mode of entry foreign
investors choose, an issue to be left for further research.
Originality/value Overall, the papers main contribution lies in its novel approach to disaggregate
different levels of corporate governance, thus allowing a more textured assessment of
corporate governance risk.
Keywords Strategic management, Emerging markets, Competitive strategy, Direct investment
Paper type Research paper

In the broadest sense, corporate governance can be defined as the

stewardship responsibility of corporate directors to provide oversight for the goals and
strategies of a company and to foster their implementation. Corporate governance may thus
be perceived as the set of interlocking rules by which corporations, shareholders and
management govern their behavior. These rules refer to individual firm attributes and the
factors that allow companies to maintain sound governance practices even where
public institutions are relatively weak. Such factors may include a corporations
ownership structure, its relationships with stakeholders, financial transparency and
information disclosure practices as well as the configuration of its managing boards.

VOL. 5 NO. 3 2005, pp. 12-23, Q Emerald Group Publishing Limited, ISSN 1472-0701

DOI 10.1108/14720700510604661

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