To Be or Not To Be: The Existential Issue for National Governance Bundles

Authors

  • Carla C.J.M. Millar

    Corresponding author
    • Address for correspondence: Carla C.J.M. Millar, School of Management and Governance, University of Twente, PO Box 217, 7500 AE Enschede, The Netherlands. Tel: 0031 53 489 5355; E-mail: c.millar@utwente.nl

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Abstract

Manuscript Type

Conceptual

Research Question/Issue

The article addresses the issue of whether governance bundles which include both formal and informal governance mechanisms should be classified and compared on the basis of national identity.

Research Findings/Insights

The governance bundle affecting each firm has formal components which are frequently based on national legislation, but also includes social and moral dimensions, and behavior in words and action that may differ widely within nations and may derive from relationships with firms and communities in other countries or even globally; only the formal component of the governance bundle may be national. The development of governance bundles is a long-term process that reflects the culture and ethical demands of the societies in which companies operate; formal institutions and laws develop and are respected – or not – in light of how informal governance mechanisms create the behavior in society. The continued existence of a mixture of familiar and different governance mechanisms in emerging markets is throwing doubt on the convergence hypothesis that development will lead all governance to a consistent model.

Theoretical/Academic Implications

The role of informal institutions – also as substitutes for corporate governance mechanisms – is central to understanding the functioning of corporate governance. Theory needs to consider the individual company and different company types (e.g., size, industry, ownership) in order to illuminate the interaction of formal corporate governance and informal institutions and other forces which constrain the company and those who control it. There needs to be more attention to the issue of sub-national and supra-national bundles together with “hybrid situations” where multinational corporations operate alongside local companies.

Practitioner/Policy Implications

The acceptability of corporate governance regimes depends on implementation at firm level; as there are substantial differences in the informal mechanisms amongst them, which may vary according to factors such as size, industry, ownership, organization or region, policy measures should have the flexibility and sophistication to take account of these.

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