Comparative perspective of corporate governance: Europe and East Asia

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  • This article was downloaded by: [University of Windsor]On: 12 November 2014, At: 14:41Publisher: RoutledgeInforma Ltd Registered in England and Wales Registered Number: 1072954 Registered office: Mortimer House,37-41 Mortimer Street, London W1T 3JH, UK

    Global Economic Review: Perspectives on East AsianEconomies and IndustriesPublication details, including instructions for authors and subscription information:http://www.tandfonline.com/loi/rger20

    Comparative perspective of corporate governance:Europe and East AsiaJeanPierre Lehmann aa The European Institute of Japanese Studies , Stockholm School of Economics , P.O. Box6501, Stockholm, S113 83, SwedenPublished online: 07 Dec 2007.

    To cite this article: JeanPierre Lehmann (1997) Comparative perspective of corporate governance: Europe and East Asia,Global Economic Review: Perspectives on East Asian Economies and Industries, 26:3, 3-36, DOI: 10.1080/12265089708422871

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  • GLOBAL ECONOMIC REVIEW 3Vol. 26, No. 3 (Autumn, 1997)

    Comparative Perspective of Corporate Governance:Europe and East Asia

    Jean-Pierre LehmannStockholm School of Economics. Sweden

    1. Preface1

    Giobalisation is having a dramatic impact on the landscape of internationalbusiness. The recent huge increase in foreign direct investment and the appearanceof prominent new actors (e.g. Korean and other East Asian emerging multinationalcorporations) are particularly striking illustrations of this phenomenon. In turn, thecombined effects of globalisation and the increased volume and importance of FDIhelp explain why corporate governance has become much more important, anddebated, internationally.

    The distinction, especially in the post Cold-war era, between internationalrelations (IR) and international business (IB) is becoming more and more blurred.Thus, while international trade negotiations have traditionally focused on issues "atthe borders" (tariffs, quotas), attention is shifting now much more to what ishappening "within borders" (competition policy, labour standards, industrialstructure, corporate governance). These economic and business forces have beenaccompanied by a certain amount of irresponsible polemic"Asian values," "clashof civilisations," "competing capitalisms"in America, Asia and Europe These riskexacerbating tensions.

    The work undertaken here sets out both to destroy myths regarding allegedEuropean (of Western) forms of corporate governance versus Asian forms ofcorporate governance and to propose a more realistic comparative framework.

    While recognising (of course) the enormous impact of the East Asianeconomics on the global business environment, there is no such thing ashomogeneity of Asian corporate governance. Just as the sources of economicgrowth in, say, Korea and Indonesia, differ, so do the structures, cultures,management, of their corporations. Furthermore, in spite of the much greater

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  • 4 Jean-Pierre Lehmann

    coherence of Europe, in comparison to East Asia, and the decades of a commonmarket and recent economic integration, pattens of corporate governance vary agreat deal in Europe as well. There is no "Asian" or "European" form of corporategovernance. Six distinct models are assessed in this paper: Anglo-American,Rheinal, Japanese keiret^u, Korean chaebol, Mediterranean and Chinese bamboonetworks.

    In respect to the three "models"of corporate governance that are most oftencited, namely the Anglo-American, German and Japanese, though contrastsundoubtedly exist, depending on the perspective, it is the similarities which maybe more striking. In a number of critical respects, Anglo-American, German andJapanese forms of corporate governancewhich remain to date the mostsuccessful modelsesemble each other more than, say, Germany would resembleItaly, the United States would resemble Canada, or Japan would resembleThailand. The contrasts, therefore, must be put in the perspective of similarities thattranscend a global framework. Similarly, greater similarities may be foundbetween forms of corporate governance in Asia and Europee.g. Italian andChinese firmsthan within the continents.

    Different forms of corporate governance emerge from national culture, levelof development, industrial structure, nature of ownership, and sources of capitalformation. Critical also in determining corporate governance patterns aregovernment-industry relations. Four models are set out: government as refereegovernment as manager, government as coach and government as crony. Thepoint that repeatedly requires emphasising is that the phenomenon is dynamic, i.esubject to change. Thus, for example, whereas in the early decades of its industrialrevolution Dorea may have corresponded to the govemment-as-manager-model(and possibly in part to government-as-crony), since the late eighties/early ninetiesit has been shifting to the govemment-as-coach-model.

    While most capitalist societies are facing crises of corporate governance, thecurrent conventional wisdom that there is an irreversible global trend toward theAnglo-Americanisation of corporate governance is questioned.

    Certainly, however, as the world economy changes, especially as itglobalises, companies must adapt. It is the external environment that leads.Throughout the industrialised and industrialising world companies recognise theneed for transformation. The Korean chaebols are under pressure to bring aboutchange in their systems of corporate governance from owner-manager toprofessional managers. In Italy, the scions of the leading families who are assumingpositions of corporate power openly admit that change and internationalisation areimperatives (Sullivan 1996). Corporate governance, therefore, is currently one ofthe "hottest" issues facing those who deal with the international political economy,with relations between states and between regions, and in the field of international

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  • Comparative Perspetives of Corporate Governance 5

    business studies.

    2. Mythology of East Asian Corporate Homogeneity

    The impact of the East Asian economies on the global economy has beenenormous and promises to remain so for the coming decades. Fcr Europe, EastAsian economic growth poses two interrelated challenges. The first is theintellectual challenge of understanding the sources, driving forces, key actors lyingbehind the economic growth of the East Asian societies. What are the propellersand where are they driving? The second is the commercial challenge of doingsuccessful business in the region and with East Asian corporations in globalmarkets.

    There has been a tendency in both political and academic circles to ascribe aunity to East Asian approaches to corporate governance, whereas in fact diversityis prominent. The reasons for the mythology include (in no particular order ofpriority):

    Although the decade since 1985 has witnessed a far greater degree of EastAsian intra-regional economic integration, intellectual integration and cross-fertilisation remain limited. East Asians do not know each other's societies well.

    The myth of Asian corporate-governance unity has partly been driven byignorance, but also by two complementary factors. One is the very relatively shortperiod over which the phenomenon has been in the public eye: to the extent thatEast Asian economic integration exists, it is hardly more than a decade old.2

    Moreover, because most of the economies of the region share very high growthrates, it has been (wrongly) assumed that they also share socio-economic structuresand cultures.

    In shaping the myth of East Asian homogeneity, the Japanese dimensionhas loomed large. Japan's economic success from the late Edo era (1860s) onwardshas been due in considerable measure to its assiduous study of and selectiveborrowing from the West. From that time onwards, Japan has been both learningfrom and closely allied to three successive Western partners: Britain, thenGermany, and since the end of World War II the United States. The trends ofgreater East Asian integration in the second half of the 1980s occurredsimultaneously with another trend: growing economic friction between Japan andthe United States. As a reaction against hitherto dominant American influence,some Japanese opinion leaders began to "re-discover" the country's Asian roots and"re-Asianisation" became the slogan.

    In the period roughly from the mid/late 1970s to the mid/late 1980s when"Japanese management" became a subject of interest, Japanese opinion leaders and

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  • 6 Jean-Pierre Lehmann

    academics tended to draw primarily socio-cultural distinctions based on ananthropological approach between "Japanese" and "Western" management. Twoimportant pillars of this phenomenon were: (a) the "West" tended to be lumpedtogether and generally held to be synonymous with America; (b) Japanese culture,on the other hand, was self-perceived as unique. More recently, however, there is atendency to ascribe alleged Japanese business traits to a greater East Asian canvas.3

    Thus, in the Japanese perspective, the "East Asian model" is very often presenteti asa Japanese model writ large.

    With the end of the cold war, economic frictions between the United Statesand East Asian countries, Japan and China in particular, have become more acute.Especially at the time when the Clinton administration came to power, there was aview in influential intellectual circles that the age of geopolitics was being replacedby that of geo-economics. In the cold war era the battle had been betweencapitalism and communism, and with the rivalry between two militarysuperpowers. The very demise of the Soviet Union, however, in itself proved thegrowing irrelevance of the conventional means of power. Henceforth, power, toparaphrase Mao Zedong, emerges no longer from the barrel of a gun, but fromfinancial and technological power. The battle is no longer between capitalism andcommunism: capitalism has conquered, even in supposedly communist countries,e.g. China and Vietnam. The 21st century battlefield, according to this school ofthought, is one that will pit different types of capitalism against each other.4

    Although Japan has been the bte noire of the geo-economists, some of these writershave also tended to paint Japanese corporate governance stokes on to a broaderEast Asian canvas.

    3. Limitations of European Integration

    East Asians, as pointed out earlier, know each other relatively little and untilrecently, with the exception of Japan, were not engaged among themselves intrade, investments, etc. In contrast, the European nations have been engaged ineconomic activitiesas well as war, peace, inter-marriage, migration, learning, etc.with each other for centuries. Furthermore, while East Asian discussions aboutregional cooperation are of recent vintage, the construction of a European commonspace has been in preparation for half-a-century. However, although the singleEuropean market was inaugurated in 1993, its creation has not resulted in a singleEuropean business community. The distinctive approach of individual Europeannations to businessand the persistence of national barriershas prevented thefusion on any large scale of different European businesses.

    Cross-border European mergers, acquisitions or alliances tend to fall into

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  • Comparative Perspetives of Corporate Governance 7

    one of several distinct categories: Very, very large projects, that simply cannot exist without extensivecross-border cooperation, which arc deemed to be of strategic significanceand where the role of governments looms large. Thus, Europe would not beable to have a sizeable civil aircraft industry, let alone compete with Boeing,without a four-nation arrangement as in Airbus.5

    High-tech areas, also deemed of strategic significance, where the size ofthe project may not be so great, but resources in R&D need to pooled, e.g.the Italo-French joint venture between SGS and Thomson in thesemiconductor industry. Acquisitions by very dominant European players of much smaller fry inreatively low-tech industries: e.g. the BMWRover and VolkswagenSeatacquisitions in automobiles. Cross-border companies that predate and therefore have little, if any,connection to European integration, e.g. Royal Dutch Shell and Unilever.There are exceptions to these rules, though, apart from ABB, none are of

    glaring proportions. The creation of ABB resulted from the merger between Aseaof Sweden and Brown Boveri of Switzerland. It is hailed as the paragon ofEuropean integrationeven if one of the two partners' national origins does notfigure among the members of the European Union, and the other is a recentmemberand as a company with extensive global reach, great competitive powerand strategic vision. In reality, however, ABB is not so much an "exemplar," as aunique creature.

    What is striking about the European business community is how "national"national companies have remained.6

    4. Corporate Governance in the Japanese,German and Anglo-American Models

    Comparing corporate governance in different cultures can be done from anumber of different perspectives. Comparisons can overlap with contrasts. Theframework addressed here reviews the characteristics of Japanes...

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