Crisis of Corporate Governance or Meeting of the Cultures (Executive Summary) by Igor Serbinin

10/15/2009 17:39



            This review takes a distant look at how different cultures reflect in the corporate control structures co-existing in global economy.

  1. Russia:

A.     Redistribution of Wealth: “Russians have been conditioned by adversity, crisis, and uncertainty. They have learned to be cautious and to move in response to unpredictable and uncontrollable events by alternating intense work and rest. They have developed a special capacity for communal work and have struggled to reconcile centralization and decentralization.”

B.     Tension in the South: brings Russia to the forefront of world energy market. As potential alternative to OPEC Russia may evolve as new major trading partner subject to the uncertainty in the transportation sector and federal taxation.

  1. European Union:

A.     Better corporate governance through increased shareholder democracy: fifth directive of the European Commission in the 80’s started to introduce additional measures to improve stakeholder participation in corporate governance through the two-tiered corporate board system. European business grew out of closer opportunities and less tolerance to the excesses in business crimes. 

B.     Parmalat is Europe’s Enron: Closely held public company still has an option of choosing form of its board. Lack of regulation in auditing procedures resulted in Parmalat scandal.

C.     New Regulatory Mechanisms after Parmalat: New bankruptcy proceedings, “Italian premium” on refinancing debt, new accounting procedures including registration with the IFAB.

  1. United States:

A.     Profit maximization is still a first priority: “Americans have been conditioned by a more plentiful environment and have learned to expect that as individuals they will be able to influence their environment and achieve their goals. They have drawn on the plentiful land of the frontier in developing traits of individualism and voluntary association. Local governments and democratic institutions have dominated local government.”

B.     Future steps under Sarbanes-Oxley: SEC evolved as a tri-hat regulatory body preserving independence of the directors at the expense of the stakeholders in order to maximize the profit. Recent developments in the wake of corporate scandals continue the same route of extending participation of institutional investors. The trend will continue with some changes in auditing sector and reporting requirements subject to constitutionality challenges. Consulting arms of major auditing firms will be separated from less profitable auditing services.

  1. International Business in the Future:

                  International business will be shaping in accordance with cultural differences using certain features from each other; EU style “state control “will certainly move closer to the US style “market-control” bankruptcy procedures. Transparency introduced by Sarbanes-Oxley will not help radically improve US corporate accountability; the push from globalization will move the social responsibility within next ten years. Russia will be more adept for EU model providing for a smoother transition in contrast to earlier shock therapy policies.

For a full text of this article please open document Meeting of the Cultures.