Book Review

Abdul Rasheed and Toru Yoshikawa (Eds.), The Convergence of Corporate Governance: Promiseand Prospects, Palgrave Macmillan, Basingstoke, 2012, ISBN 9780230297463, 296 pp.

A n influential paper in the comparative corporate gover-nance literature by Hansmann and Kraakman (2001)

proposed that it was inevitable that governance modelsacross the world would converge to the (superior) Anglo-American model. This book, edited by Professors AbdulRasheed and Toru Yoshikawa, has contributions from schol-ars that take stock of the changes in governance practices ofpublic corporations in various countries to evaluateHansmann and Kraakman’s (2001) thesis of the “end ofhistory” and convergence of corporate governance to theAnglo-American model. The evidence in the book suggeststhere has been some convergence, but it is far from com-plete, and various elements of prevalent alternate modelspersist.

This is an important and timely topic. Countries aregetting more and more globally integrated, but differencesremain and it is important for us to learn the extent to whichgovernance practices are converging. The book should beuseful not just for scholars interested in the current state ofthe art on convergence, but also for those seeking to learnabout similarities and differences in corporate governanceacross the world.

Rasheed and Yoshikawa (Chapter 1) provide a useful over-view of the topic. They define convergence as the isomor-phism in practices across countries and distinguish betweenvarious forms of convergence. They analyze both the driversthat propel corporations towards convergence (e.g., increas-ing integration in product, labor, and capital markets acrossthe world as well as diffusion of governance codes) and theimpediments that inhibit convergence (e.g., institutionalrigidities, path dependencies, complementarities, and inter-est groups that serve to maintain the status quo). Theirreview of the extant literature provides a useful account ofthe state of knowledge and it sets the stage for the originalresearch that forms the rest of the book.

Hansmann and Kraakman (Chapter 2) reflect on theextent to which actual practices reflect the claims they madein their influential call for convergence a decade ago. Theyprovide a spirited defense of their thesis and conclusion thatthe shareholder model is indeed gaining significant groundover the alternate state-, labor-, and management-orientedmodels. They base their conclusion on claims of ideology(most scholars agree that it is superior), efficiency (it isthe most efficient way to organize), and factual (actualevidence).

Most of the remaining chapters take a country-by-countryapproach to evaluating convergence in a variety of countries,including Canada, Germany, India, Japan, Korea, Singapore,and Spain. A set of chapters also explores specific mecha-nisms of convergence such as the role of multinationalcorporations (MNCs), corporate governance codes, andcross-listing.

Bates and Hennessy (Chapter 3) note that Canada is geo-graphically the closest country to the US, yet convergenceremains elusive. Canadian regulations promote conver-gence to a shareholder model by supporting dissident proxyinitiatives; yet other regulations that maintain Canadianblock ownership limit the efficacy of dissident proxy initia-tives as large block shareholders are relatively invulnerableto such pressures to be more receptive to minority share-holders.

In their study of Germany, Tuschke and Luber (Chapter 4)explain that larger corporations are more likely to adoptshareholder-oriented practices than are smaller corpora-tions. Yet, even among larger corporations, existing charac-teristics such as the two board model that is based onemployee co-determination has led to a persistence of thestakeholder model with limited convergence related to somepractices (such as incentive compensation) in a limited set offirms.

In their study of India, Rajagopalan and Zhang (Chapter5) explain that the legal framework favors convergence, butweak enforcement and rampant corruption stand in the wayof actual convergence. They argue, however, that marketforces arising from a relaxation in foreign ownership arelikely to foster more convergence as Indian firms becomeincreasingly impacted by international product and capitalmarkets.

In her study of Japan, Ahmadjian (Chapter 6) explains thatthere has been a fair degree of convergence over the last twodecades, and firms have become more receptive to a share-holder orientation. However, entrenched local players havebeen able to perpetuate the status quo by shaping regula-tions (e.g., on boards) to be optional rather than mandatory.

In their study of Korea, Kim and Lee (Chapter 7) explainthat the Asian crisis led to changes in mandatory regulatorypressured by normative influences from the IMF and thegovernment, and market influence of foreign and otheractivist investors. Yet the quick recovery of the economy andlarge businesses blunted many of these pressures to con-

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verge, and a hybrid form has evolved, which incorporatesboth the traditional family capitalism and the new share-holder capitalism.

In her study of Singapore, Tsui-Auch (Chapter 8) explainsthat government played a bigger role in regulating changesfor more shareholder-friendly policies as part of theirresponse to make the country attractive as a global hubfollowing the Asian crisis. While many firms adopted thenew governance codes, firms have exercised discretion withrespect to substantive adoption, similar to what is observedin Korea.

In their study of Spain, Garcia-Castro and Aguilera(Chapter 9) also report an emerging hybrid model that com-bines the traditional (high ownership concentration, weaktakeover market, strong banks, underdeveloped institu-tions) with some aspects of the shareholder model fromEuropean Union governance codes (e.g., increased transpar-ency, board independence and accountability).

The remaining chapters study the agents of convergencesuch as MNCs (Sikavaka and Yoshikawa, Chapter 10), gov-ernance codes (Haxhi and Aguilera, Chapter 11), and cross-listing (Peng and Blevins, Chapter 12). Anglo-Saxon MNCscan foster convergence to the extent there is a strong linkbetween parent and subsidiary, and the similarity of thecontext. Governance codes do have a normative influence,but the process of adaptation can spur hybrids rather thandirect convergence. Cross-listing poses an additionalmechanism, e.g., Chinese firms listed in the US may transferthe practices in their US entity to their other markets.Research on various mechanisms should facilitate a betterunderstanding of convergence.

Governance scholarship should be grounded both in con-ceptual and empirical research and in the actual laws andpractices of governance in various countries. While concep-tual work tends to emphasize frameworks that are general-izable across various external contexts, the very nature of

comparative governance requires explicit consideration ofdifferences across institutional and national boundaries. Theunique aspects of a country can be inaccessible to research-ers in other parts of the world. The chapters on variouscountries explain the unique features of the institutional andnational context and how these shape convergence.

The lens of convergence can help greatly in conceptualiz-ing and testing the boundaries of prevalent theories of man-agement and governance. Most mainstream theories havebeen developed in an Anglo-American setting. Most empiri-cal tests also tend to be carried out in an Anglo-Americansetting. By extending study to countries outside the Anglo-American setting, we can rigorously investigate whether ourtheories are indeed generalizable across the world, orwhether unique aspects of the culture or institutionalcontext require modifications to extant theories. It is hopedthat original scholarship from across the world will engen-der opportunities for cross-fertilization and spur richer theo-ries, while providing new contexts for more rigorous testing.The field would benefit from follow-up studies that exploreconvergence in a broader set of countries, for example,emerging economies (e.g., Brazil, Russia, China), East Euro-pean countries, African countries, and Australia/NewZealand. Likewise, expanding the scope of research toinclude empirical study of other mechanisms of conver-gence, e.g., foreign ownership and changes in laws, wouldalso be beneficial.

REFERENCE

Hansmann, H. & Kraakman, R. 2001. The end of history for corpo-rate law. Georgetown Law Journal, 89: 439–468.

Reviewed by Associate Professor Parthiban DavidAmerican University

BOOK REVIEW 71

Volume 22 Number 1 January 2014© 2014 John Wiley & Sons Ltd