The Implementation of OECD Corporate Governance Principles in Post-Crisis Asia
(by: Rum Tampubolon)
The Organization for Economic Co-operation and Development (OECD) Principles recognize that governance
forms part of a wider macroeconomic context where the legal and institutional frameworks play a major part.
This Principles represent one such system and ‘focus on governance issues that result from the separation of
ownership and control’.
In this paper Lu and Batten intentionally to evaluate the extent to which cultural factors will affect the
implementation of the OECD Principles in Asia generally, though emphasis will be placed on applications in
Indonesia, Korea, Thailand, Malaysia and the Philippines. The effects of ownership concentration on shareholder
rights, particularly concerning voting rights; the role of relationship-based commercial activity, especially
between banks and corporations, and its impact on creditor participation within the governance system; and,
finally, the effect of culture on disclosure, transparency and enforcement.
The postulate of this publication is based on the need to correct the Asian corporate governance problem and
are formally stated as:
(i)
The evolutionary concept of governance and law prevents the transplant of the OECD principles;
Culture underlies most of the difficulties with transplants. The implication for the OECD becomes:
while beliefs that universal laws should transcend societal influences, there is a general consensus
that law is inextricably linked to cultural values. A legal transplant is essentially the process of
transferring a system of law that was developed in one country to another country.
(ii)
Ownership structure, as representative of culture, will affect minority shareholder protection in
Asia;
The nature of the agency problem by the degree of dispersion between management and
ownership. High dispersion (low concentration) occurs when the majority of ownership is held by a
large number of individual, minority shareholders. The problem then is that between management
and minority shareholders. Low dispersion (high concentration) is where the majority of ownership
is controlled by a small number of large shareholders. The problem then is between majority and
minority shareholders. In countries where developed capital markets exist and ownership is
predominantly dispersed, investors can rely on legal protection.
(iii)
The role of relationship-based business will affect the participation of stakeholders in the
governance system;
Relationship-based commercial activity is the result of cultural tendency for group affiliation that is
true of Asian nations. To alter current relationships, therefore, to resemble more professional
commercial interaction and allow stakeholder participation, is an opportunity to influence good
governance for the benefit of all investors.
(iv)
The prevalence of insiders in current governance systems will affect compliance with increased
disclosure and transparency regulations;
Deficiency in pre-crisis standards of transparency and accountability allowed corporate
management to avoid disclosure of corporate activity, often through the suppression of information
or systematic misinformation regarding impropriety and management practices. Now,
disclosure and transparency are seen as imperative to achieving corporate accountability: that is,
to make managers answerable for their behavior.
(v)
Contextual change will assist in the implementation of improved, but not global, standards.
To achieve the aim of establishing good corporate governance regimes, there is a need for an
inherent culture of integrity, notably absent in Asia. The difficulty in changing culture is that people
have been raised in a culture ‘programmed’ to work comfortably in it and thus will resist change.
The adoption of internationally recognized standards of good governance has been posited as an appropriate
and expedient method of reforming perceived problems and offers enterprises the chance to gain a share of
future investment capital. Ownership structure (composition and concentration) has the most influence on
implementation, and is related to the other factors investigated: the existence of insiders and the role of
relationships. No one model can accommodate such diversity, given a cultural shift—in the philosophical
(relationships) and economic (finance) bases of the firm—contextual change methods suggest that effective
governance systems might be implemented over the long term.