Institutionalizing Codes of Governance

Abstract

Economic systems are undergoing a generalized effort to improve corporate governance structures and processes. Waves of scandals and increasing public scrutiny push institutional regulators and corporate boards of directors to establish and adopt new practices. Codes of good governance have emerged as a primary tool to increase the effectiveness of corporate governance systems. Building on extant views of institutional change, the authors study the process of the institutionalization of codes of governance and the role of the different actors involved in issuing the codes. They define four groups of actors: law-makers, model makers, market makers, and governance enactors. They analyze a sample of 150 codes of governance introduced in 78 countries from 1978 to 2004 to describe the following stages of institutionalization: precipitating jolts, theorization, diffusion, and reinstitutionalization. This description invites thorough investigation of the content of codes of governance and the likelihood adopting such codes in a given country.

Development of Corporate Governance Regulations: The Case of an Emerging Economy

“…By adopting this model, governments in developing countries may try to send signals to the public that the unpopular reforms (promoting globalisation and free markets) are guided by efficient corporate structures that will help generate condition for economic growth and development. This is consistent with Enrione et al (2006) who suggest that late adopters of CG codes tend to mimic established practices for the sake of gaining legitimacy.…”

“…This is also consistent with Enrione et al (2006), who find such countries to be late adaptors of CG regulations. However, the paper did not comment on the types of codes adopted by the sample countries.…”

“…The apparent shortcomings of the agency theory in explaining CG in developing countries have forced different authors to use other theoretical foundations, and the new institutional sociology (NIS) framework has been a popular choice (for example, Enrione et al, 2006;Yoshikawa et al, 2007 etc.). NIS explains why different organisations structure themselves in a similar manner.…”

“…It was found that, in defence of legitimacy, the Japanese government had to eventually revise the commercial code. Enrione et al (2006) investigated the institutionalisation of CG codes using the NIS approach. The paper argues that institutionalising processes generally lead to convergence.…”

“…This is consistent with Mir and Rahaman (2005), who suggest that Bangladesh preferred to adopt the International Accounting Standards rather than developing its own standards because the international standards seem more preferable to its stakeholder groups. Also, the NIS framework suggests that late adopters of CG codes will tend to mimic established practices for the sake of legitimacy (Enrione et al, 2006).…”