On October 25, the Olayan School of Business hosted a lecture in College Hall entitled “Issues and Practices in Corporate Governance: Challenges and Opportunities for Emerging Markets.” It was presented by Sir Geoffrey Owen, former editor of the Financial Times and a visiting senior fellow. The lecturer discussed the different methods of corporate governance that oscillate between shareholding by a group of investors and family-owned businesses—as practiced in the United States, England, Germany, Japan, and South Korea—to reach the conclusion that a hybrid corporate system should be adopted by emerging markets such as Lebanon. Owen started by explaining why improved corporate governance matters for emerging markets, stating that it increases access to external financing, which leads firms to larger investments, higher growth, and greater employment opportunities. A lowering of the cost of capital and the associated higher valuation of the firm also makes investments attractive to investors, leading to growth and more employment. There are differences between countries in their corporate governance arrangements, and these are linked to wider differences in their financial systems, such as the extent to which the companies rely on bank loans, the ownership structure—individuals or institutions-in publicly—listed companies, the ease with which young companies can obtain equity financing, and the frequency of hostile takeovers. In the United States in the 1950s and 1960s, the ownership structure went from being family-based to being owned by shareholders, and companies enjoyed eminent discretion in using resources without the consideration of shareholders. This began to change in the 1970s because of competition, and shareholders started having a say in every aspect of the company. When this happened, takeovers and the breaking up of companies were encouraged, which resulted in a shift away from forms of conglomerate capitalism to specialization, whereby a company would focus on a specific line of products. England was a decade behind in the transition from family-owned companies. When families gave up their corporate governance and companies became open to shareholders, the United Kingdom followed a market-based system, as opposed to insider control. The separation of ownership and management went less far in Germany and not many companies went public. Around 49 percent of the shares of BMW, for example, are owned by an individual family, reflecting insider control. And a Dutch bank owns a big part of Benz—it is a long-term investment and the shareholdings are permanent and not traded (as is the case in the United States). Japan still follows an insider-based corporate governance system. Toyota, for example, may have a few shares in Mitsubishi, which makes it very difficult for hostile takeovers to take place. The Japanese companies wish to expand and care very little about maximizing their shareholdings. South Korea focused on developing its family-based corporations, but weaknesses in the Korean system led to a ferociously steep recession. This resulted in hesitation on the part of foreign investors in making long-term investments. The government is now trying to reform its corporate governance system, but some people argue that commitments of families, such as the Samsung family, are too great to diffuse in a shareholding system. Owen concluded by attempting to answer the question: What is the best corporate governance system? The trend today is that the US system is the best. According to Owen, however, there are certain advantages to continuing with family control: stability and long-term commitment. It may be possible to combine the advantages of family control with the openness to external investment and the maintaining of high standards of development. Thus, a hybrid system between the insider and outsider system is feasible for emerging markets.
|
|||||||
|
