Berger (1996) indicates that the theory of convergence draws on conceptions of international competition, globalization and regional integration. As previously indicated, the diffusion of the role of stock exchanges in self-regulation, the unification of equity markets, emerging new legislation and pressures from institutional investors may contribute to the transformation of corporate governance systems. Pahn (1998:43-61) states: “. . . throughout the world, the practice of corporate governance is increasingly becoming isomorphic as codes of conduct are promulgated and standards of governance are enforced by . . . globally oriented organisations [. . .] It has been easy in the past to identify differences in corporate governance practices, primarily driven by tradition, law and social structure, between Asia, continental Europe and the USA.
This is now increasingly difficult. Where before, standards of good practice have merely been suggested, there is an increasing movement within regulatory bodies to render them mandatory and homogenous across jurisdictions.” Rubach and Sebora (1998:167) suggest: “As governance structures and systems initially developed, differing legal, financial, and cultural factors caused them to vary. Divergent paths resulted in multiple governance forms. Presently, evidence is growing that these governance systems are changing and are beginning to look more alike. This convergence of governance systems can be viewed as the adoption of the best practices of the existing systems.”
Thurman (1990:28) also indicates: “The board of directors, long a bastion of the capitalistic system, is proving to be affected like other institutions, by the economic, political and social environments of the countries around the world.”
Seen from a theoretical point of view, this development can be approached from both conflict and consensus perspectives of board organization. According to a conflict perspective of board organization, the composition, the leadership structure and the organization of one-tier boards are negatively associated with the separation of decision management from decision control (see assumptions A.1a, A.1b and A.1d in chapter three). A conflict perspective of board organization suggests that the composition, the leadership structure and the organization of two-tier boards are positively associated with the separation of board roles (see assumptions A.2a, A.2b and A.2d in chapter three).
As indicated by figure 5.1, this may suggest that the incorporation of key two-tier board model attributes into one-tier models (arrow a) would facilitate the separation of decision management from decision control. Seen from a consensus perspective of board organization, chapter four suggests that the integration of decision management with decision control can be facilitated by the incorporation of key one-tier board attributes in two-tier boards. This process is indicated by arrow b in figure 5.1.
The combination of assumptions developed in the previous chapters of this study give rise to two propositions on the transformation of board models. These propositions (P1 and P2) are indicated by respectively arrows a and b in figure 5.1. Based on a conflict perspective of board organization, proposition 1 (P.1) states:
Proposition 1 (P.1):To facilitate the separation of executive directors’ decision management role from non-executive directors’ decision control role, appropriate attributes of two-tier boards are incorporated into one-tier boards.
Proposition 2 (P.2), as suggested by a consensus perspective of board organization states:
Proposition 2 (P.2): To facilitate the integration of executive directors’ decision management role with non-executive directors’ decision control role, appropriate attributes of one-tier boards are incorporated into two-tier boards.
Developments in major board models, as suggested by propositions P.1 and P.2, may indicate a process of board model transformation due to pressures from legislators, exchanges, institutional investors and others.
A Theoretical Framework of Board Model Transformation and Convergence
A.1a = Assumption 1a, etc.
Source: based on Maassen and van den Bosch (1997b).
This may suggest that the transformation of board model attributes works in two directions and that differences between attributes of one-tier and two-tier boards may be reduced over time. One-tier board models may transform towards a two-tier board model and vice versa two-tier boards may incorporate more dual attributes. This observation is formalized by proposition 3 (P.3):
Proposition 3 (P.3): Over time, a tendency towards convergence of major board models can be observed through diminishing differences between the key attributes of one-tier and two-tier boards of directors.
A few studies have considered the transformation and convergence of board models (Demb and Neubauer, 1992b). The International Capital Markets Group (1995) indicates that developments of global markets and the growth of cross-border investment activity have brought about a natural process of board model convergence. The study found international developments in the formation of oversight committees and a global tendency of boards to separate CEO and chairman roles. Cadbury (1995) suggests that American boards are moving towards a de facto two-tier structure by means of an increasing proportion of non-executive directors in the board and the formation of executive board committees comprised entirely of executive directors.
Goddard (1996) indicates that there is an increasing similarity of company laws through regional convergence in the European Union and the US that can diminish differences between board models. Yoshimori (1995) and Kester (1996) also suggest that signs of partial convergence are discernible in Japanese and Western board models. To further explore the transformation and convergence of board models, this study elaborates on changes in the formal organization of corporate boards of directors in the US, the UK and the Netherlands.
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